Peatlands within the northern permafrost region cover approximately 2 million km² and are characterized by organic soils that can be several meters thick, and a fine-scale mosaic of permafrost and non-permafrost landforms interspersed by shallow ponds and lakes. Ongoing permafrost thaw is transforming these peatlands, causing abrupt changes to their morphology, hydrology, ecology, and biogeochemistry. In this review we show how changes to individual peatlands depend on both their Holocene developmental history and their location within current permafrost zones. Permafrost thaw in peatlands often leads to land surface collapse between 0.5 and 5 m, the so-called thermokarst. Thermokarst in peatlands can lead to the development of ice-wedge troughs, waterlogged thermokarst bogs and fens, and the initiation, expansion, and drainage of thermokarst lakes. Permafrost thaw in peatlands can thus completely alter vegetation composition and shift patterns of landscape inundation and hydrological connectivity. These changes in turn have implications for magnitude and timing of runoff, downstream water quality, habitat suitability for birds and larger mammals, traditional land-use, and the exchange of greenhouse gases with the atmosphere. Ongoing permafrost thaw is largely irreversible at relevant human time-scales, and peatland thermokarst has been accelerating over the last few decades. Complete permafrost loss is expected this century for peatlands in relatively warmer permafrost zones, and all peatlands in the northern permafrost region will be profoundly transformed by permafrost thaw.