Subalpine streams are predicted to experience lower summer discharge following climate change and water extractions. In this study, we aimed to understand how drought periods impact dissolved organic matter (DOM) processing and ecosystem metabolism of subalpine streams. We mimicked a gradient of drought conditions in stream-side flumes and evaluated implications of drought on DOM composition, gross primary production, and ecosystem respiration. Our experiment demonstrated a production and release of DOM from biofilms and leaf litter decomposition at low discharges, increasing dissolved organic carbon concentrations in stream water by up to 50%. Absorbance and fluorescence properties suggested that the released DOM was labile for microbial degradation. Dissolved organic carbon mass balances revealed a high contribution of internal processes to the carbon budget during low flow conditions. The flumes with low discharge were transient sinks of atmospheric CO2 during the first 2 weeks of drought. After this autotrophic phase, the metabolic balance of these flumes turned heterotrophic, suggesting a nutrient limitation for primary production, while respiration remained high. Overall our experimental findings suggest that droughts in subalpine streams will enhance internal carbon cycling by transiently increasing primary production and more permanently respiration as the drought persists. We propose that the duration of a drought period combined with inorganic nutrient availability are key variables that determine if more carbon is respired in situ or exported downstream.