Permafrost soils contain approximately twice the amount of carbon as the atmosphere and this carbon could be released with Arctic warming, further impacting climate. Mosses are major component of Arctic tundra ecosystems, but the environmental drivers controlling heat penetration though the moss layer and into the soil and permafrost are still debated, especially at fine spatial scales where microtopography impacts both vegetation and soil moisture. This study measured soil temperature profiles (1-15 cm), summer thaw depth, water table depth, soil moisture, and moss thickness at a fine spatial scale (2 m) together with meteorological variables to identify the most important controls on the development of the thaw depth during two Arctic summers. We found a negative relationship between the green moss thickness (up to 3 cm) and the soil temperatures at 15 cm, suggesting that mosses insulated the soil even at high volumetric water contents (>70%) in the top 5 cm. A drier top (2-3 cm) green moss layer better insulated deep (15 cm) soil layers by reducing soil thermal conductivity, even if the moss layers immediately below the top layer were saturated. The thickness of the top green moss layer had the strongest relationships with deeper soil temperatures, suggesting that the top layer had the most relevant role in regulating heat transfer into deeper soils. Further drying of the top green moss layer could better insulate the soil and prevent permafrost thawing, representing a negative feedback on climate warming, but damage or loss of the moss layer due to drought or fire could reduce its insulating effects and release carbon stored in the permafrost, representing a positive feedback to climate warming.