Hydrological conditions play a key role in the carbon cycle of northern peatlands. This study examines the evapotranspiration (ET) dynamics and its impact on the water and energy balance in response to differing meteorological conditions during the exceptionally dry year 2006 and the normal wet year 2007 at a boreal peatland in Finland. Energy and water vapor fluxes were determined continuously using the eddy covariance approach. Daily ET rates varied considerably during the growing season and averaged 2.23 ± 0.15 mm d−1 and 1.59 ± 0.07 mm d−1 in the dry and wet year, respectively. Synoptic weather conditions as reflected by incoming radiation and water vapor pressure deficit (VPD) were the key factors controlling ET. Differences in the precipitation patterns and summer temperature also accounted for some of the observed differences in ET between the 2 years. No evidence was found for a relationship between ET rates and water table level, probably due to the relatively high water table level even in the dry year. Latent heat flux dominated the energy balance, particularly in the dry year 2006 with 60% of cumulative precipitation returned to the atmosphere through ET. In the wet year 2007, runoff dominated the water loss, and only 36% of the cumulative precipitation was returned to the atmosphere through ET. While the annual water balance regime of the peatland was mainly regulated by the precipitation pattern, daily measured ET was closely related to potential evaporation, and latent heat flux could be well modeled by the Penman-Monteith approach, suggesting two feasible schemes for ET prediction in peatlands under well watered conditions.