In high-latitude ecosystems bryophytes are important drivers of ecosystem functions. Alterations in abundance of mosses due to global change may thus strongly influence carbon (C) and nitrogen (N) cycling and hence cause feedback on climate. The effects of mosses on soil microbial activity are, however, still poorly understood. Our study aims at elucidating how and by which mechanisms bryophytes influence microbial decomposition processes of soil organic matter and thus soil nutrient availability. We present results from a field experiment in a subarctic birch forest in northern Sweden, where we partly removed the moss cover and replaced it with an artificial soil cover for simulating moss effects on soil temperature and moisture. We combined this with a fertilization experiment with ¹⁵N-labelled N for analysing the effects of moss N sequestration on soil processes. Our results demonstrate the capacity of mosses to reduce soil N availability and retard N cycling. The comparison with artificial soil cover plots suggests that the effect of mosses on N cycling is linked to the thermal insulation capacity of mosses causing low average soil temperature in summer and strongly reduced soil temperature fluctuations, the latter also leading to a decreased frequency of freeze-thaw events in autumn and spring. Our results also showed, however, that the negative temperature effect of mosses on soil microbial activity was in part compensated by stimulatory effects of the moss layer, possibly linked to leaching of labile substrates from the moss. Furthermore, our results revealed that bryophytes efficiently sequester added N from wet deposition and thus prevent effects of increased atmospheric N deposition on soil N availability and soil processes. Synthesis. Our study emphasizes the important role of mosses in carbon and nutrient cycling in high-latitude ecosystems and the potential strong impacts of reductions in moss abundance on microbial decomposition processes and nutrient availability in subarctic and boreal forests.