AbstractThe sustainability of the vast Arctic permafrost carbon pool under climate change is of paramount importance for global climate trajectories. Accurate climate change forecasts, therefore, depend on a reliable representation of mechanisms governing Arctic carbon cycle processes, but this task is complicated by the complex interaction of multiple controls on Arctic ecosystem changes, linked through both positive and negative feedbacks. As a primary example, predicted Arctic warming can be substantially influenced by shifts in hydrologic regimes, linked to, for example, altered precipitation patterns or changes in topography following permafrost degradation. This study presents observational evidence how severe drainage, a scenario that may affect large Arctic areas with ice‐rich permafrost soils under future climate change, affects biogeochemical and biogeophysical processes within an Arctic floodplain. Our in situ data demonstrate reduced carbon losses and transfer of sensible heat to the atmosphere, and effects linked to drainage‐induced long‐term shifts in vegetation communities and soil thermal regimes largely counterbalanced the immediate drainage impact. Moreover, higher surface albedo in combination with low thermal conductivity cooled the permafrost soils. Accordingly, long‐term drainage effects linked to warming‐induced permafrost degradation hold the potential to alleviate positive feedbacks between permafrost carbon and Arctic warming, and to slow down permafrost degradation. Self‐stabilizing effects associated with ecosystem disturbance such as these drainage impacts are a key factor for predicting future feedbacks between Arctic permafrost and climate change, and, thus, neglect of these mechanisms will exaggerate the impacts of Arctic change on future global climate projections.