Changes in temperature and moisture resulting from climate change are likely to strongly modify the ecosystem carbon sequestration capacity in high-latitude areas, both through vegetation shifts and via direct warming effects on photosynthesis and decomposition. This paper offers a synthesis of research addressing the potential impacts of climate warming on soil processes and carbon fluxes at the forest–tundra ecotone in Scandinavia. Our results demonstrated higher rates of organic matter decomposition in mountain birch forest than in tundra heath soils, with markedly shallower organic matter horizons in the forest. Field and laboratory experiments suggest that increased temperatures are likely to increase CO₂ efflux from both tundra and forest soil providing moisture availability does not become limiting for the decomposition process. Furthermore, colonization of tundra heath by mountain birch forest would increase rates of decomposition, and thus CO₂ emissions, from the tundra heath soils, which currently store substantial amounts of potentially labile carbon. Mesic soils underlying both forest and tundra heath are currently weak sinks of atmospheric methane, but the strength of this sink could be increased with climate warming and/or drying.