The carbon storage of wetlands is related to inhibited enzyme activity (particularly phenol oxidase) under oxygen-deprived conditions. However, phenol oxidase response to field drainage is highly uncertain, constraining our ability to predict wetland carbon–climate feedbacks. Here, using literature data, laboratory simulations and a pair-wise survey of 30 diverse wetlands experiencing long-term (15–55 years) drainage across China, we show that while short-term drainage generally leads to increased phenol oxidative activity, its response to long-term drainage diverges in Sphagnum versus non-Sphagnum wetlands. In non-Sphagnum wetlands, long-term drainage is linked to increased plant secondary metabolites and decreased phenol oxidase-producing microbes, while in Sphagnum wetlands, drainage is linked to replacement of antimicrobial Sphagnum by vascular plants and increased phenol oxidative activity with cascading effects on hydrolytic enzymes. Our findings highlight that trait-based plant dynamics are pivotal to decipher wetland carbon dynamics and feedback to climate change under shifting hydrological regimes.