Nitrogen (N) is a limiting nutrient in many peatland ecosystems. Enhanced N deposition, a major component of global climate change, affects ecosystem carbon (C) balance and alters soil C storage by changing plant and soil properties. However, the effects of enhanced N deposition on peatland ecosystems are poorly understood. We conducted a two-year N additions field experiment in a peatland dominated by Eriophorum vaginatum in the Da Xing’an Mountains, Northeast China. Four levels of N treatments were applied: (1) CK (no N added), (2) N1 (6 g N m⁻² yr⁻¹), (3) N2 (12 g N m⁻² yr⁻¹), and (4) N3 (24 g N m⁻²  yr⁻¹). Plant and soil material was harvested at the end of the second growing season. N additions increased litter N and phosphorus (P) content, as well as β-glucosidase, invertase, and acid-phosphatase activity, but decreased litter C:N and C:P ratios. Litter carbon content remained unchanged. N additions increased available NH₄⁺–N and NO₃⁻–N as well as total Gram-positive (Gram+), Gram-negative (Gram−), and total bacterial phospholipid fatty acids (PLFA) in shallow soil (0–15 cm depth). An increase in these PLFAs was accompanied by a decrease in soil labile organic C (microbial biomass carbon and dissolved organic carbon), and appeared to accelerate decomposition and reduce the stability of the soil C pool. Invertase and urease activity in shallow soils and acid-phosphatase activity in deep soils (15–30 cm depth) was inhibited by N additions. Together, these findings suggest that an increase in N deposition in peatlands could accelerate litter decomposition and the loss of labile C, as well as alter microbial biomass and function.