Human-driven peatland drainage has occurred in Europe for centuries, causing habitat degradation and leading to the emission of greenhouse gases. As such, in the last decades, there has been an increase in policies aiming at restoring these habitats through rewetting. Alder (Alnus glutinosa L.) is a widespread species in temperate forest peatlands with a seemingly high waterlogging tolerance. Yet, little is known about its specific response in growth and wood traits relevant for tree functioning when dealing with changing water table levels. In this study, we investigated the effects of rewetting and extreme flooding on alder growth and wood traits in a peatland forest in northern Germany. We took increment cores from several trees at a drained and a rewetted stand and analyzed changes in ring width, wood density, and xylem anatomical traits related to the hydraulic functioning, growth, and mechanical support for the period 1994–2018. This period included both the rewetting action and an extreme flooding event. We additionally used climate-growth and climate-density correlations to identify the stand-specific responses to climatic conditions. Our results showed that alder growth declined after an extreme flooding in the rewetted stand, whereas the opposite occurred in the drained stand. These changes were accompanied by changes in wood traits related to growth (i.e., number of vessels), but not in wood density and hydraulic-related traits. We found poor climate-growth and climate-density correlations, indicating that water table fluctuations have a stronger effect than climate on alder growth. Our results show detrimental effects on the growth of sudden water table changes leading to permanent waterlogging, but little implications for its wood density and hydraulic architecture. Rewetting actions should thus account for the loss of carbon allocation into wood and ensure suitable conditions for alder growth in temperate peatland forests.