Peatland ecosystems have been consistent carbon (C) sinks for millennia, but it has been predicted that exposure to warmer temperatures and drier conditions associated with climate change will shift the balance between ecosystem photosynthesis and respiration providing a positive feedback to atmospheric CO2 concentration. Our main objective was to determine the sensitivity of ecosystem photosynthesis, respiration and net ecosystem production (NEP) measured by eddy covariance, to variation in temperature and water table depth associated with interannual shifts in weather during 2004–2009. Our study was conducted in a moderately rich treed fen, the most abundant peatland type in western Canada, in a region (northern Alberta) where peatland ecosystems are a significant landscape component. During the study, the average growing season (May–October) water depth declined approximately 38 cm, and temperature [expressed as cumulative growing degree days (GDD, March–October)] varied approximately 370 GDD. Contrary to previous predictions, both ecosystem photosynthesis and respiration showed similar increases in response to warmer and drier conditions. The ecosystem remained a strong net sink for CO2 with an average NEP (± SD) of 189 ± 47 g C m−2 yr−1. The current net CO2 uptake rates were much higher than C accumulation in peat determined from analyses of the relationship between peat age and cumulative C stock. The balance between C addition to, and total loss from, the top 0–30 cm depth (peat age range 0–70 years) of shallow peat cores averaged 43 ± 12 g C m−2 yr−1. The apparent long-term average rate of net C accumulation in basal peat samples was 19–24 g C m−2 yr−1. The difference between current rates of net C uptake and historical rates of peat accumulation is likely a result of vegetation succession and recent increases in tree establishment and productivity.