UK peatlands are affected by severe gully erosion with consequent impacts on ecosystem services from these areas. Incision into the peat can damage the vegetation and hydrology and lead to increases in carbon loss and sediment transfer downstream. Gullies represent then a conduit for and a hotspot of carbon loss but the relatively high water tables of gullies have meant that they have been identified as areas with a high restoration potential because of easily restored peat-forming conditions. This study uses a series of gully sites, subject to different restoration interventions, to investigate differences in carbon pathways (DOC, CO2) and hydrology between restoration strategies and gully position. The results show that the position within the gully (interfluve, gully side, or gully floor) does not significantly affect water quality but that it plays a significant role in CO2 exchange. Gully floors are areas of high photosynthesis and ecosystem respiration, though net ecosystem exchange is not significantly different across the gully. While gully position plays a role in the cycling of some carbon species, this study highlights the importance of vegetation as a key control on carbon cycling. Copyright © 2012 John Wiley & Sons, Ltd.