In the sporadic permafrost zone of North America, thaw-induced boreal forest loss is leading to permafrost-free wetland expansion. These land cover changes alter landscape-scale surface properties with potentially large, however, still unknown impacts on regional climates. In this study, we combine nested eddy covariance flux tower measurements with satellite remote sensing to characterize the impacts of boreal forest loss on albedo, eco-physiological and aerodynamic surface properties, and turbulent energy fluxes of a lowland boreal forest region in the Northwest Territories, Canada. Planetary boundary layer modelling is used to estimate the potential forest loss impact on regional air temperature and atmospheric moisture. We show that thaw-induced conversion of forests to wetlands increases albedo, bulk surface conductance for water vapour and aerodynamic surface temperature. At the same time, heat transfer efficiency is reduced. These shifts in land surface properties increase latent at the expense of sensible heat fluxes, thus, drastically reducing Bowen ratios. Due to the lower albedo of forests and their masking effect of highly reflective snow, available energy is lower in wetlands, especially in late winter. Modelling results demonstrate that a conversion of a present-day boreal forest–wetland to a hypothetical homogeneous wetland landscape could induce a near-surface cooling effect on regional air temperatures of up to 3–4 °C in late winter and 1–2 °C in summer. An atmospheric wetting effect in summer is indicated by a maximum increase in water vapour mixing ratios of 2 mmol mol−1. At the same time, maximum boundary layer heights are reduced by about a third of the original height. In fall, simulated air temperature and atmospheric moisture between the two scenarios do not differ. Therefore, permafrost thaw-induced boreal forest loss may modify regional precipitation patterns and slow down regional warming trends.