Peatland ecosystems cover only 3 % of the world’s land area, however they store one-third of the global soil carbon (C). Peatlands play a central role in global C cycling as they contain more organic C than any other terrestrial ecosystem. Microbial communities are the main drivers of decomposition in peatlands, yet we have limited knowledge of their structure and function. We investigated the vertical stratification of prokaryote and fungal communities from two bogs located in the Australian Alps in Wellington Plain peatland (one degraded following historic grazing activity, the other intact) along a vertical soil depth gradient. We analysed the prokaryote and fungal diversity, community structure, PICRUSt predictive functional profiles of bacteria and assigned soil fungal guilds using FUNGuild. We found that prokaryotes were structurally and functionally vertically stratified. Carbon (C), Nitrogen (N), Lead (Pb), Sodium (Na) and Manganese (Mn) explained best the prokaryote composition. Prokaryote richness was significantly higher in the intact bog acrotelm compared to degraded bog acrotelm. Fungal composition remained similar across the soil depth gradient, however there was a considerable increase in saprotroph abundance and decrease in ericoid and ectomycorrhizal abundance along the vertical soil depth gradient. The abundance of saprotrophs and plant pathogens was two-fold higher in degraded bog acrotelm. Mn, electrical conductivity, water table level (cm) and N explained best the fungal composition. Our results demonstrate that both fungal and prokaryote communities are shaped by soil abiotic factors and peatland degradation reduces microbial richness and alters microbial functions. Thus, current and future changes to the environmental conditions in these peatlands may lead to altered microbial structure and associated functions which may have implications for broader ecosystem function changes in peatlands.