Peatlands have influenced Holocene carbon (C) cycling by storing atmospheric C and releasing methane (CH4). Yet, our understanding of contributions from the world's second largest peatland, the Hudson Bay Lowlands (HBL), Canada, to peat-climate-C-dynamics is constrained by the paucity of dated peat records and regional C-data. Here we examine HBL peatland development in relation to Holocene C-dynamics. We show that peat initiation in the HBL is tightly coupled with glacial isostatic adjustment (GIA) through most of the record, and occurred within suitable climatic conditions for peatland development. HBL peatlands initiated most intensively in the mid-Holocene, when GIA was most rapid and climate was cooler and drier. As the peat mass developed, we estimate that the HBL potentially released 1-7 Tg CH4 per year during the late Holocene. Our results indicate that the HBL currently stores a C-pool of ~30 Pg C and provide support for a peatland-derived CH4 contribution to the late Holocene atmosphere.