We explored the influence of small-scale spatial variation in soil moisture on CO₂ fluxes in the high Arctic. Of five sites forming a hydrological gradient, CO₂ was emitted from the three driest sites and only the wettest site was a net sink of CO₂. Soil moisture was a good predictor of net ecosystem exchange (NEE). Higher gross ecosystem photosynthesis (GEP) was linked to higher bryophyte biomass and activity in response to the moisture conditions. Ecosystem respiration (R _e) rates increased with soil moisture until the soil became anaerobic and then R _e decreased. At well-drained sites R _e was driven by GEP, suggesting substrate and moisture limitation of soil respiration. We propose that spatial variability in soil moisture is a primary driver of NEE.