Much of the world's boreal forest occurs on permafrost (perennially cryotic ground). As such, changes in permafrost conditions have implications for forest function and, within the zone of discontinuous permafrost (30–80% permafrost in areal extent), distribution. Here, forested peat plateaus underlain by permafrost are elevated above the surrounding permafrost-free wetlands; as permafrost thaws, ground surface subsidence leads to waterlogging at forest margins. Within the North American subarctic, recent warming has produced rapid, widespread permafrost thaw and corresponding forest loss. Although permafrost thaw-induced forest loss provides a natural analogue to deforestation occurring in more southerly locations, we know little about how fragmentation relates to subsequent permafrost thaw and forest loss or the role of changing conditions at the edges of forested plateaus. We address these knowledge gaps by (i) examining the relationship of forest loss to the degree of fragmentation in a boreal peatland in the Northwest Territories, Canada; and (ii) quantifying associated biotic and abiotic changes occurring across forest-wetland transitions and extending into the forested plateaus (i.e., edge effects). We demonstrate that the rate of forest loss correlates positively with the degree of fragmentation as quantified by perimeter to area ratio of peat plateaus (edge : area). Changes in depth of seasonal thaw, soil moisture, and effective leaf area index (LAIe) penetrated the plateau forests by 3–15 m. Water uptake by trees was sevenfold greater in the plateau interior than at the edges with direct implications for tree radial growth. A negative relationship existed between LAIe and soil moisture, suggesting that changes in vegetation physiological function may contribute to changing edge conditions while simultaneously being affected by these changes. Enhancing our understanding of mechanisms contributing to differential rates of permafrost thaw and associated forest loss is critical for predicting future interactions between the land surface processes and the climate system in high-latitude regions.