Lost Hammer (LH) spring is a unique hypersaline, subzero, perennial high Arctic spring arising through thick permafrost. In the present study, the microbial and geochemical characteristics of the LH outflow channels, which remain unfrozen at C-18°C and are more aerobic/ less reducing than the spring source were examined and compared to the previously characterized spring source environment. LH channel sediments contained greater microbial biomass (*100-fold) and greater microbial diversity reflected by the 16S rRNA clone libraries. Phylotypes related to methanogenesis, methanotrophy, sulfur reduction and oxidation were detected in the bacterial clone libraries while the archaeal community was dominated by phylotypes most closely related to THE ammonia-oxidizing Thaumarchaeota. The cumulative percent recovery of 14 Cacetate mineralization in channel sediment microcosms exceeded *30% and *10% at 5 and -5°C, respectively, but sharply decreased at -10°C( B1%). Most bacterial isolates (Marinobacter, Planococcus, and Nesterenkonia spp.) were psychrotrophic, halotolerant, and capable of growth at -5°C. Overall, the hypersaline, subzero LH spring channel has higher microbial diversity and activity than the source, and supports a variety of niches reflecting the more dynamic and heterogeneous channel environment.