Internal water storage and water exchanges that sustain hydration are critical for the physiological function of Sphagnum mosses that have recolonized cutover peatlands characterized by low soil–water pressures. The relative importance of water gains and losses for spontaneously regenerated Sphagnum moss cushions was addressed through investigation of the sensitivity of moss moisture dynamics to a range of environmental variables. Precipitation waters are poorly retained within the cushions, which indicated that rain event water can only be relied upon by the mosses for a short period. The relationship between water table depth and moisture content within moss cushions was strong when the water table was within 30 cm of the surface of the cutover peat but weakened as conditions became drier, as reflected by weakened upward hydraulic gradients in the unsaturated zone below the moss cushions. Calculation of a water budget between 19 May and 16 August 2006 for relatively wet and dry cushions, respectively, identified a water deficit of 28 and 44 mm. It is hypothesized that additional (small) sources of water during deficit conditions may be critical for maintaining physiological processes. Rewetting of the peatland by blocking drainage ditches created conditions more favourable for Sphagnum survival through increasing the moisture content and soil–water pressures within the remnant peat deposit although restoration efforts should aim to constrain the water table position to within the upper 30 cm. Copyright © 2013 John Wiley & Sons, Ltd.