AbstractDirect and indirect effects of warming are increasingly modifying the carbon‐rich vegetation and soils of the Arctic tundra, with important implications for the terrestrial carbon cycle. Understanding the biological and environmental influences on the processes that regulate foliar carbon cycling in tundra species is essential for predicting the future terrestrial carbon balance in this region. To determine the effect of climate change impacts on gas exchange in tundra, we quantified foliar photosynthesis (Anet), respiration in the dark and light (RD and RL, determined using the Kok method), photorespiration (PR), carbon gain efficiency (CGE, the ratio of photosynthetic CO2 uptake to total CO2 exchange of photosynthesis, PR, and respiration), and leaf traits of three dominant species – Betula nana, a woody shrub; Eriophorum vaginatum, a graminoid; and Rubus chamaemorus, a forb – grown under long‐term warming and fertilization treatments since 1989 at Toolik Lake, Alaska. Under warming, B. nana exhibited the highest rates of Anet and strongest light inhibition of respiration, increasing CGE nearly 50% compared with leaves grown in ambient conditions, which corresponded to a 52% increase in relative abundance. Gas exchange did not shift under fertilization in B. nana despite increases in leaf N and P and near‐complete dominance at the community scale, suggesting a morphological rather than physiological response. Rubus chamaemorus, exhibited minimal shifts in foliar gas exchange, and responded similarly to B. nana under treatment conditions. By contrast, E. vaginatum, did not significantly alter its gas exchange physiology under treatments and exhibited dramatic decreases in relative cover (warming: −19.7%; fertilization: −79.7%; warming with fertilization: −91.1%). Our findings suggest a foliar physiological advantage in the woody shrub B. nana that is further mediated by warming and increased soil nutrient availability, which may facilitate shrub expansion and in turn alter the terrestrial carbon cycle in future tundra environments.