In situ manipulations were conducted in a naturally drained lake on the arctic coastal plain near Prudhoe Bay, Alaska (70 °21.98′ N, 148 °33.72′ W) to assess the potential short-term effects of decreased water table and elevated temperature on net ecosystem CO2 flux. The experiments were conducted over a 2-year period, and during that time, water table depth of drained plots was maintained on average 7 cm lower than the ambient water table, and surface temperatures of plots exposed to elevated temperature were increased on average 0.5 °C. Water table drainage, and to a lesser extent elevated temperature, resulted in significant increases in ecosystem respiration (ER) rates, and only small and variable changes in gross ecosystem productivity (GEP). As a result, drained plots were net sources of ≈ 40 gC m–2 season–1 over both years of manipulation, while control plots were net sinks of atmospheric CO2 of about 10 gC m–2 season–1 (growing season length was an estimated 125 days). Control plots exposed to elevated temperatures accumulated slightly more carbon than control plots exposed to ambient temperatures. The direct effects of elevated temperature on net CO2 flux, ER, and GEP were small, however, elevated temperature appeared to interact with drainage to exacerbate the amount of net carbon loss. These data suggest that many currently saturated or nearly saturated wet sedge ecosystems of the north slope of Alaska may become significant sources of CO2 to the atmosphere if climate change predictions of increased evapotranspiration and reduced soil water status are realized. There is ample evidence that this may be already occurring in arctic Alaska, as a change in net carbon balance has been observed for both tussock and wet-sedge tundra ecosystems over the last 2–3 decades, which coincides with a recent increase in surface temperature and an associated decrease in soil water content. In contrast, if precipitation increases relatively more than evapotranspiration, then increases in soil moisture content will likely result in greater carbon accumulation.