Peatlands are one of the largest global terrestrial carbon (C) pools, and play a vital role in provision of key ecosystem functions and as refugia for biodiversity. Many peatlands continue to be exploited with lowland raised bogs among the most affected by human modification. It is also now recognised that global climate change has potential to cause further impacts to peatlands, and it is thought that northern peatlands are particularly vulnerable to changes in temperature and precipitation. In this thesis, I report from a series of experiments to test; 1) the effect drought on soil CO2 efflux and photosynthate allocation, and production and chemical composition of dissolved organic carbon in leachate, 2) the effects of ericoid mycorrhizal (ERM) fungal necromass on soil CO2 efflux, 3) whether nitrogen (N) from ERM fungal necromass is important for plant nutrition, and 4) how different species of ERM fungi affect C and N turnover. These experiments were undertaken using a combination of field manipulations and measurements, and establishment of simplified mesocosms and microcosm systems. My results show that soil CO2 efflux in lowland degraded peatland is driven by the depth of water table, and that management of these systems from a C cycling perspective should consider ways to stabilise water table depth. Interpretation of data from field-girdling of C. vulgaris plants and 13CO2 pulse labelling strongly suggested that recent plant photosynthate has little apparent effect on this flux in contrast to many other ecosystems. Although the biomass of ERM fungi is often assumed to have a minor role in C cycling, my data show that the necromass of these fungi is highly labile and turnover rapidly, with potential to make important contributions to CO2 efflux and other microbially-driven processes.