Rapid warming accelerates permafrost thaw in Arctic peatlands, exposing their large stocks of soil organic matter (SOM) to microbial decomposition. Despite the importance of permafrost peatlands for ecosystem-climate feedback, their coupled C and N mineralization potential and associated greenhouse gas (GHG) dynamics still remain poorly understood. Particularly interesting in this context is the upper permafrost, which is expected to thaw in near future and has been linked to substantial CO<sub>2</sub> and N<sub>2</sub>O production in previous studies.</p> <p>Here, we investigated depth patterns of SOM mineralization and GHG production in a subarctic palsa mire in a factorial incubation experiment, where peat from active layer and upper permafrost was exposed to three temperatures (4, 10, and 16 °C) and two oxygen conditions (aerobic, anaerobic).</p> <p>The highest rate of CO<sub>2</sub> production with the lowest temperature sensitivity were found in the surface peat and upper permafrost. Surface peat showed CH<sub>4</sub> consumption under aerobic condition, while CH<sub>4</sub> production was negligible across all peat depths and oxygen conditions. The highest rate and lowest temperature sensitivity of net N mineralization were found in upper permafrost and active layer-permafrost interface, but this did not translate into high N<sub>2</sub>O production; instead, the maximum N<sub>2</sub>O production occurred under anaerobic condition in the lower active layer.</p> <p>Overall, our study revealed distinct depth patterns of C and N dynamics in palsa profiles, with high mineralization potential in the upper permafrost, supported by labile SOM. Relatively high mineralization rates at low temperatures resulted in low temperature sensitivity in the upper permafrost, and indicate high potential for C and N losses under realistic temperature range expected with gradual active layer deepening in the deep peat layers.