Sphagnum mosses are keystone components of peatland ecosystems. They facilitate the accumulation of carbon in peat deposits, but climate change is predicted to expose peatland ecosystem to sustained and unprecedented warming leading to a significant release of carbon to the atmosphere. Sphagnum responses to climate change, and their interaction with other components of the ecosystem, will determine the future trajectory of carbon fluxes in peatlands. We measured the growth and productivity of Sphagnum in an ombrotrophic bog in northern Minnesota, where ten 12.8‐m‐diameter plots were exposed to a range of whole‐ecosystem (air and soil) warming treatments (+0 to +9°C) in ambient or elevated (+500 ppm) CO2. The experiment is unique in its spatial and temporal scale, a focus on response surface analysis encompassing the range of elevated temperature predicted to occur this century, and consideration of an effect of co‐occurring CO2 altering the temperature response surface. In the second year of warming, dry matter increment of Sphagnum increased with modest warming to a maximum at 5°C above ambient and decreased with additional warming. Sphagnum cover declined from close to 100% of the ground area to <50% in the warmest enclosures. After three years of warming, annual Sphagnum productivity declined linearly with increasing temperature (13–29 g C/m2 per °C warming) due to widespread desiccation and loss of Sphagnum. Productivity was less in elevated CO2 enclosures, which we attribute to increased shading by shrubs. Sphagnum desiccation and growth responses were associated with the effects of warming on hydrology. The rapid decline of the Sphagnum community with sustained warming, which appears to be irreversible, can be expected to have many follow‐on consequences to the structure and function of this and similar ecosystems, with significant feedbacks to the global carbon cycle and climate change.