The mid-Holocene eruption of Aniakchak volcano (Aniakchak II) in southwest Alaska was among the largest eruptions globally in the last 10,000 years (VEI-6). Despite evidence for possible impacts on global climate, the precise age of the eruption is not well-constrained and little is known about regional environmental impacts. A closely spaced sequence of radiocarbon dates at a peatland site over 1000 km from the volcano show that peat accumulation was greatly reduced with a hiatus of approximately 90–120 yr following tephra deposition. During this inferred hiatus no paleoenvironmental data are available but once vegetation returned the flora changed from a Cyperaceae-dominated assemblage to a Poaceae-dominated vegetation cover, suggesting a drier and/or more nutrient-rich ecosystem. Oribatid mites are extremely abundant in the peat at the depth of the ash, and show a longer-term, increasingly wet peat surface across the tephra layer. The radiocarbon sample immediately below the tephra gave a date of 1636–1446 cal yr BC suggesting that the eruption might be younger than previously thought. Our findings suggest that the eruption may have led to a widespread reduction in peatland carbon sequestration and that the impacts on ecosystem functioning were profound and long-lasting.