Recent warming at high-latitudes has accelerated permafrost thaw in northern peatlands, and thaw can have profound effects on local hydrology and ecosystem carbon balance. To assess the impact of permafrost thaw on soil organic carbon (OC) dynamics, we measured soil hydrologic and thermal dynamics and soil OC stocks across a collapse-scar bog chronosequence in interior Alaska. We observed dramatic changes in the distribution of soil water associated with thawing of ice-rich frozen peat. The impoundment of warm water in collapse-scar bogs initiated talik formation and the lateral expansion of bogs over time. On average, Permafrost Plateaus stored 137 ± 37 kg C m^-2, whereas OC storage in Young Bogs and Old Bogs averaged 84 ± 13 kg C m^-2. Based on our reconstructions, the accumulation of OC in near-surface bog peat continued for nearly 1,000 years following permafrost thaw, at which point accumulation rates slowed. Rapid decomposition of thawed forest peat reduced deep OC stocks by nearly half during the first 100 years following thaw. Using a simple mass-balance model, we show that accumulation rates at the bog surface were not sufficient to balance deep OC losses, resulting in a net loss of OC from the entire peat column. An uncertainty analysis also revealed that the magnitude and timing of soil OC loss from thawed forest peat depends substantially on variation in OC input rates to bog peat and variation in decay constants for shallow and deep OC stocks. These findings suggest that permafrost thaw and the subsequent release of OC from thawed peat will likely reduce the strength of northern permafrost-affected peatlands as a carbon dioxide sink, and consequently, will likely accelerate rates of atmospheric warming.