Forested peatlands represent an important global carbon pool, storing 48.0 Pg of carbon within continental western Canada alone. Peatland hydrology regulates the carbon dynamics and future stability of this carbon store and provides a critical control on regional water dynamics. Drying associated with land-use change and climate change has the potential to increase tree growth, modifying the density, size, and spatial arrangement of trees. This can reduce peatland evaporation and offset the associated increase in transpiration. To determine the magnitude of this negative ecohydrological feedback, we simulated spatial variations in radiation, turbulent energy fluxes, and temperatures in peatlands with real and idealized tree densities and distributions. For a random tree distribution, an increase in tree density from 0 to 4 trees per m2 reduced available energy at the peat surface, decreasing average evaporation by 25%. At higher tree densities, feather moss species covered a larger fraction of the ground because of lower light availability. In combination with the lower energy availability, this change in moss composition reduced evaporation by ~70%. The reduction in evaporation was greater (83%) when the effects of increased canopy cover on peatland aerodynamic properties were incorporated. Additionally, we found that evaporation was dependent on the spatial arrangement of trees, with evaporation being higher when trees were clustered. Overall, our model showed that the trade-off between reduced evaporation and increased transpiration with increasing tree densities reduced landscape variation in evapotranspiration, with simulated evapotranspiration remaining approximately constant across a broad range of peatland ecosystems despite varying canopy densities.