Peatlands act as global sinks of atmospheric carbon (C) through the accumulation of organic matter(1), primarily made up of decay-resistant litter of peat mosses(2). However, climate warming has been shown to promote vascular plant growth in peatlands, especially ericaceous shrubs(3). A change in vegetation cover is in turn expected to modify above-ground/below-ground interactions(4), but the biogeochemical mechanisms involved remain unknown. Here, by selecting peatlands at different altitudes to simulate a natural gradient of soil temperature, we show that the expansion of ericaceous shrubs with warming is associated with an increase of polyphenol content in both plant litter and pore water. In turn, this retards the release of nitrogen (N) from decomposing litter, increases the amount of dissolved organic N and reduces N immobilization by soil microbes. A decrease of soil water content with increasing temperature promotes the growth of fungi, which feeds back positively on ericaceous shrubs by facilitating the symbiotic acquisition of dissolved organic N. We also observed a higher release of labile C from vascular plant roots at higher soil temperatures, which promotes the microbial investment in C-degrading enzymes. Our data suggest that climate-induced changes in plant cover can reduce the productivity of peat mosses and potentially prime the decomposition of organic matter by affecting the stoichiometry of soil enzymatic activity.