Peatlands store one-third of global soil carbon 1 . Drought/drainage coupled with climate warming present the main threat to these stores 1-4 . Hence, understanding drought e ects and inherent feedbacks related to peat decomposition has been a primary global challenge 5,6 . However, widely divergent results concerning drought in recent studies 3,7-11 challenge the accepted paradigm that waterlogging and associated anoxia are the overarching controls locking up carbon stored in peat. Here, by linking field and microcosm experiments, we show how previously unrecognized mechanisms regulate the build-up of phenolics, which protects stored carbon directly by reducing phenol oxidase activity during short-term drought and, indirectly, through a shift from low-phenolic Sphagnum/herbs to high-phenolic shrubs after long-term moderate drought. We demonstrate that shrub expansion induced by drought/warming 2,6,10,12,13 in boreal peatlands might be a long-term self-adaptive mechanism not only increasing carbon sequestration but also potentially protecting historic soil carbon. We therefore propose that the projected 'positive feedback loop' between carbon emission and drought in peatlands 2,3,14,15 may not occur in the long term.Peatlands, covering only 3% of Earth's land area, store about 445 Pg of carbon 1 . These stores result from a small imbalance between production and decomposition over millennia under predominantly waterlogged conditions. However, drought and drainage coupled with warming have been substantially lowering water levels for decades and have resulted in a degradation of more than 11% of global peatlands 1 . These hydrologic shifts often threaten carbon stores, changing peatlands from a carbon sink to a carbon source by increasing decomposition 2,3,[14][15][16] ; concomitantly, the crucial peat-forming Sphagnum mosses are replaced by shrubs/trees 2,10,12 with possibly substantial feedbacks on climate change 6,10 . However, recent evidence showed that in some peatlands drought had little impact or even decreased CO 2 emission and increased carbon accumulation [7][8][9][10][11][17][18][19] (Supplementary Table 1). These contrasting results raise uncertainty on the future fate of peat carbon and question the conventional theory that anoxia is the key to sustaining peat carbon.Detailed comparisons of these drought studies (for example, refs 2,3,7-11,14,15,17,18) show that the initial water level and dominant species varied before drought manipulation (Supplementary Table 1), indicating that these peatlands were in different successional stages 6 . In Sphagnum peatlands, where water levels were mostly above or near the ground surface, drought increased CO 2 emission. However, drought seemed to have less impact in unsaturated and shrub/tree-dominated peatlands. Phenolic inhibitory e ect is defined as a negative value of Pearson's r between soil respiration and soluble phenolics in the surface soil. The grey square is one masked value (removed from the regression) in a drained site where samples were collected a...