Forested peatlands contain large pools of terrestrial carbon. As well as drainage, forest management such as fertilizer application can affect these pools. We studied the effect of wood ash (application rates 0, 5 and 15 t ha−1) on the heterotrophic soil respiration (CO2 efflux), cellulose decomposition, soil nutrients, biomass production and amount of C accumulated in a tree stand on a pine-dominated drained mire in central Finland. The ash was spread 13 years before the respiration measurements. The annual CO2 efflux was statistically modelled using soil temperature as the driving variable. Wood ash application increased the amounts of mineral nutrients of peat substantially and increased soil pH in the uppermost 10 cm layer by 1.5–2 pH units. In the surface peat, the decomposition rate of cellulose in the ash plots was roughly double that in control plots. Annual CO2 efflux was least on the unfertilized site, 238 g CO2-C m−2 year−1. The use of wood ash nearly doubled CO2 efflux to 420–475 g CO2-Cm−2 year−1 on plots fertilized with 5–15 t ha−1 of ash, respectively. Furthermore, ash treatments resulted also in increased stand growth, and during the measurement year, the growing stand on ash plots accumulated carbon 11–12 times faster than the control plot. The difference between peat C emission and amount of C sequestered by trees on the ash plots was 43–58 g C m−2, while on the control plot it was 204 g C m−2. Our conclusion is that adding wood ash as a fertilizer increases more C sequestration in the tree stand than C efflux from the peat.