Palsa peats are characterized by elevated, circular frost heaves (peat soil on top of a permanently frozen ice lens) and are strong to moderate sources or even temporary sinks for the greenhouse gas nitrous oxide (N(2)O). Palsa peats are predicted to react sensitively to global warming. The acidic palsa peat Skalluvaara (approximate pH 4.4) is located in the discontinuous permafrost zone in northwestern Finnish Lapland. In situ N(2)O fluxes were spatially variable, ranging from 0.01 to -0.02 μmol of N(2)O m(-2) h(-1). Fertilization with nitrate stimulated in situ N(2)O emissions and N(2)O production in anoxic microcosms without apparent delay. N(2)O was subsequently consumed in microcosms. Maximal reaction velocities (v(max)) of nitrate-dependent denitrification approximated 3 and 1 nmol of N(2)O per h per gram (dry weight [g(DW)]) in soil from 0 to 20 cm and below 20 cm of depth, respectively. v(max) values of nitrite-dependent denitrification were 2- to 5-fold higher than the v(max) nitrate-dependent denitrification, and v(max) of N(2)O consumption was 1- to 6-fold higher than that of nitrite-dependent denitrification, highlighting a high N(2)O consumption potential. Up to 12 species-level operational taxonomic units (OTUs) of narG, nirK and nirS, and nosZ were retrieved. Detected OTUs suggested the presence of diverse uncultured soil denitrifiers and dissimilatory nitrate reducers, hitherto undetected species, as well as Actino-, Alpha-, and Betaproteobacteria. Copy numbers of nirS always outnumbered those of nirK by 2 orders of magnitude. Copy numbers of nirS tended to be higher, while copy numbers of narG and nosZ tended to be lower in 0- to 20-cm soil than in soil below 20 cm. The collective data suggest that (i) the source and sink functions of palsa peat soils for N(2)O are associated with denitrification, (ii) actinobacterial nitrate reducers and nirS-type and nosZ-harboring proteobacterial denitrifiers are important players, and (iii) acidic soils like palsa peats represent reservoirs of diverse acid-tolerant denitrifiers associated with N(2)O fluxes.