Despite our current understanding of permafrost thaw in subarctic regions in response to rising air temperatures, little is known about the subsurface geometry and distribution of discontinuous permafrost bodies in peat-covered, wetland-dominated terrains and their responses to rising temperature. Using electrical resistivity tomography, ground-penetrating radar profiling, and thermal-conduction modeling, we show how the land cover distributions influence thawing of discontinuous permafrost at a study site in the Northwest Territories, Canada. Permafrost bodies in this region occur under forested peat plateaus and have thicknesses of 5–13 m. Our geophysical data reveal different stages of thaw resulting from disturbances within the active layer: from widening and deepening of differential thaw features under small frost-table depressions to complete thaw of permafrost under an isolated bog. By using two-dimensional geometric constraints derived from our geophysics profiles and meteorological data, we model seasonal and interannual changes to permafrost distribution in response to contemporary climatic conditions and changes in land cover. Modeling results show that in this environment (1) differences in land cover have a strong influence on subsurface thermal gradients such that lateral thaw dominates over vertical thaw and (2) in accordance with field observations, thaw-induced subsidence and flooding at the lateral margins of peat plateaus represents a positive feedback that leads to enhanced warming along the margins of peat plateaus and subsequent lateral heat conduction. Based on our analysis, we suggest that subsurface energy transfer processes (and feedbacks) at scales of 1–100 m have a strong influence on overall permafrost degradation rates at much larger scales.