Boreal wetlands hold vast stocks of soil carbon (C), which may be vulnerable to changes in climate. In southcentral Alaska, wetlands of the Kenai Lowlands have experienced a warming and drying trend that has led to woody vegetation encroachment into herbaceous wetlands. We examined whether predicted higher rates of gross ecosystem photosynthesis (GEP) would be offset by higher rates of ecosystem respiration (ER) in woody wetland communities. We measured net ecosystem exchange (NEE) in four communities along a hydrologic and vegetation gradient during (1) a warm and dry growing season, (2) a more typical cool and wet growing season and (3) the intervening winter. We fit simple GEP and ER models to our data and estimated annual NEE for each community using hourly measurements of photosynthetically active radiation and air temperature. We found that woody communities exhibited greater GEP than herbaceous communities under cool and moist conditions, but more similar GEP under warm and dry conditions. Woody communities also showed greater ER than herbaceous communities during all seasons, outpacing GEP during the warm and dry growing season. On an annual basis, we estimated that herbaceous communities were either net sinks or approximately CO2 neutral, ranging from −132·8 to 4·7 g CO2–C m−2 y−1. In contrast, woody communities were sources of CO2 to the atmosphere, ranging from 78·8 to 181·7 g CO2–C m−2 y−1. Our results suggest that the initial encroachment of woody vegetation into herbaceous wetlands will lead to a substantial loss of C, particularly if conditions continue to become warmer and drier. Copyright © 2011 John Wiley & Sons, Ltd.