Future increases in temperature and cloud cover will alter plant growth and decomposition of the large carbon pools stored in Arctic soils. A better understanding of interactions between above- and belowground processes and communities of plants and microorganisms is essential for predicting Arctic ecosystem responses to climate change. We measured ecosystem CO2 fluxes during the growing season for seven years in a dwarf-shrub tundra in West Greenland manipulated with warming and shading and experiencing a natural larvae outbreak. Vegetation composition, soil fungal community composition, microbial activity, and nutrient availability were analyzed after six years of treatment. Warming and shading altered the plant community, reduced plant CO2 uptake, and changed fungal community composition. Ecosystem carbon accumulation decreased during the growing season by 61% in shaded plots and 51% in warmed plots. Also, plant recovery was reduced in both manipulations following the larvae outbreak during the fifth treatment year. The reduced plant recovery in manipulated plots following the larvae outbreak suggests that climate change may increase tundra ecosystem sensitivity to disturbances. Also, plant community changes mediated via reduced light and reduced water availability due to increased temperature can strongly lower the carbon sink strength of tundra ecosystems.