Water is a limiting factor for life in the McMurdo Dry Valleys (MDV), Antarctica. The active layer (seasonally thawed soil overlying permafrost) accommodates dynamic hydrological and biological processes for 10–16 weeks per year. Wetted margins (visually wetted areas with high moisture content) adjacent to lakes and streams are potential locations of great importance in the MDV because of the regular presence of liquid water, compared with the rest of the landscape where liquid water is rare. At 11 plots (four adjacent to lakes, seven adjacent to streams), soil particle size distribution, soil electrical conductivity, soil water content and isotopic signature, width of the wetted margin, and active layer thaw depth were characterised to determine how these gradients influence physicochemical properties that determine microbial habitat and biogeochemical cycling. Sediments were generally coarse-grained in wetted margins adjacent to both lakes and streams. Wetted margins ranged from 1·04 to 11·01 m in average length and were found to be longer at lakeside sites than streamside. Average thaw depths ranged from 0·12 to 0·85 m, and were found to be deepest under lake margins. Lake margins also had much higher soil electrical conductivity, steeper topographic gradients, but more gradual soil moisture gradients than stream margins. Patterns of soil water δ18O and δD distribution indicate capillary action and evaporation from wetted margins; margin pore waters generally demonstrated isotopic enrichment with distance from the shore, indicating evaporation of soil water. Lake margin pore waters were significantly more negative in DXS (DXS = δD-8δ18O) than streamside pore waters, indicating a longer history of evaporation there. Differences between lake and stream margins can be explained by the more consistent availability of water to lake margins than stream margins. Differences in margin characteristics between lakes and streams have important consequences for the microbial habitat of these margins and their functional role in biogeochemical cycling at these terrestrial–aquatic interfaces. Copyright © 2009 John Wiley & Sons, Ltd.