Peat mosses (Sphagnum) largely govern carbon sequestration in Northern Hemisphere peatlands. We investigated functional traits related to growth and decomposition in Sphagnum species. We tested the importance of environment and phylogeny in driving species traits and investigated trade-offs among them. We selected 15 globally important Sphagnum species, representing four sections (subgenera) and a range of peatland habitats. We measured rates of photosynthesis and decomposition in standard laboratory conditions as measures of innate growth and decay potential, and related this to realized growth, production, and decomposition in their natural habitats. In general, we found support for a trade-off between measures of growth and decomposition. However, the relationships are not strong, with r ranging between 0.24 and 0.45 for different measures of growth versus decomposition. Using photosynthetic rate to predict decomposition in standard conditions yielded R2 = 0.20. Habitat and section (phylogeny) affected the traits and the trade-offs. In a wet year, species from sections Cuspidata and Sphagnum had the highest production, but in a dry year, differences among species, sections, and habitats evened out. Cuspidata species in general produced easily decomposable litter, but their decay in the field was hampered, probably due to near-surface anoxia in their wet habitats. In a principal components analysis, PCA, photosynthetic capacity, production, and laboratory decomposition acted in the same direction. The species were imperfectly clustered according to vegetation type and phylogeny, so that some species clustered with others in the same section, whereas others clustered more clearly with others from similar vegetation types. Our study includes a wider range of species and habitats than previous trait analyses in Sphagnum and shows that while the previously described growth–decay trade-off exists, it is far from perfect. We therefore suggest that our species-specific trait measures offer opportunities for improvements of peatland ecosystem models. Innate qualities measured in laboratory conditions translate differently to field responses. Most dramatically, fast-growing species could only realize their potential in a wet year. The same species decompose fast in laboratory, but their decomposition was more retarded in the field than that of other species. These relationships are crucial for understanding the long-term dynamics of peatland communities.