Sphagnum mosses account for most accumulated dead organic matter in peatlands. Therefore, understanding their responses to increasing atmospheric CO₂ is needed for estimating peatland C balances under climate change. A key process is photorespiration: a major determinant of net photosynthetic C assimilation that depends on the CO₂ to O₂ ratio. We used climate chambers to investigate photorespiratory responses of Sphagnum fuscum hummocks to recent increases in atmospheric CO₂ (from 280 to 400 ppm) under different water table, temperature, and light intensity levels. We tested the photorespiratory variability using a novel method based on deuterium isotopomers (D6^S/D6^R ratio) of photosynthetic glucose. The effect of elevated CO₂ on photorespiration was highly dependent on water table. At low water table (-20 cm), elevated CO₂ suppressed photorespiration relative to C assimilation, thus substantially increasing the net primary production potential. In contrast, a high water table (~0 cm) favored photorespiration and abolished this CO₂ effect. The response was further tested for Sphagnum majus lawns at typical water table levels (~0 and -7 cm), revealing no effect of CO₂ under those conditions. Our results indicate that only hummocks, which typically experience low water table levels, benefit from the 20^th century’s increase in atmospheric CO₂.