The fruticose lichens Cladina stellaris and Cladina rangiferina, form thick mats that can cover large areas of northern peatlands (above c. 50° latitude), including the extensive peatlands of the Hudson Bay Lowland (HBL) in Canada, where lichens may cover up to 50% of the landscape. Despite the abundance of lichens in northern peatlands, our understanding of their role within peatland ecosystems, ... [Show full abstract] and peat accumulation in particular, is limited. We investigate the potential effect of these mat‐forming lichens on peat production and decomposition processes, using field data from an ombrogenous bog in the HBL and laboratory analyses. We hypothesize that (a) production in lichen‐shrub hummocks is less than in Sphagnum‐shrub hummocks; (b) the decay of lichen litter is faster than that of Sphagnum moss, so the mass litter input to the peat profile is reduced; and (c) faster decomposition of the underlying peat is stimulated by lichen leachates, resulting in greater mass loss. We found that thick lichen mats alter vegetation composition in peatlands, reducing Sphagnum cover and inhibiting the growth of small shrubs. Coupled with low lichen productivity that is constrained by moisture conditions, production for lichen‐shrub hummocks is significantly smaller than for Sphagnum‐shrub hummocks, confirming hypothesis (a). Our data also support hypothesis (b), with chemical analyses of lichen mats and leachates from lichen mats indicating faster decay of lichens compared to Sphagnum moss, and therefore reduced mass litter input to the peat profile in lichen‐dominated hummocks. Although we found no evidence to suggest leachates from lichens enhance decomposition processes in peatlands (hypothesis c), larger dry bulk densities for peat under lichen mats indicate a loss of structural integrity and potential collapse of the peat column. Synthesis. As production of new material added to the peat column is less in lichen‐dominated hummocks, local peat accumulation slows or ceases, representing a potential temporary limit to peat growth. Our results highlight the importance of lichens as a vegetation feedback in peatland development, with thick mats probably constraining or reducing hummock height relative to adjacent, lichen‐free hollows. Our findings highlight the importance of lichens as a vegetation feedback in the development of northern peatlands. In lichen‐dominated hummocks, production of new material added to the peat column is less, causing local peat accumulation to slow or cease. This represents a temporary limit to peat growth, with thick lichen mats probably constraining or reducing hummock height relative to adjacent, lichen‐free hollows.