High‐resolution analyses of plant macrofossils, testate amoebae, pollen, mineral content, bulk density, and carbon and nitrogen were undertaken to examine the late Holocene dynamics of two permafrost peatlands in Abisko, Subarctic Sweden. The peat records were dated using tephrochronology, 14C and 210Pb. Local plant succession and hydrological changes in peatlands were synchronous with climatic shifts, although autogenous plant succession towards ombrotrophic status during peatland development was also apparent. The Marooned peatland experienced a shift ca. 2250 cal yr BP from rich to poor fen, as indicated by the appearance of Sphagnum fuscum. At Stordalen, a major shift to wetter conditions occurred between 500 and 250 cal yr BP, probably associated with climate change during the Little Ice Age. During the last few decades, the testate amoeba data suggest a deepening of the water table and an increase in shrub pollen, coinciding with recent climate warming and the associated expansion of shrub communities across the Arctic. Rates of carbon accumulation vary greatly between the sites, illustrating the importance of local vegetation communities, hydrology and permafrost dynamics. Multiproxy data elucidate the palaeoecology of S. lindbergii and show that it indicates wet conditions in peatlands. Copyright © 2017 John Wiley & Sons, Ltd.