Peatland ecosystem is rapidly degraded under influence of human activities and climate change. The mechanism of soil organic carbon (SOC) decomposition during the drained and rewetting processes of peatland have become a hot topic due to its unique redox environment. Drainage/rewetting of peatlands significantly changes the soil redox conditions, which would further affect soil microbial community and enzyme activities, drive iron redox process, and finally influence the SOC decomposition process. Recent studies have challenged the traditional theory that anoxia is the key to maintain carbon storage function of peatlands. Soil enzymes and iron, which are both affected by redox conditions, acting as ‘enzyme latch’ and ‘iron gates’, respectively, in the decomposition and storage of SOC in peatland ecosystems. However, there is an urgent need for further research on the interaction of enzymes, organic carbon, and iron and its microbial driving mechanism during the drainage/rewetting processes of peatlands. This research summarized the effect of drainage/drought/rewetting on the composition and molecular structure of soil SOC and the carbon emission processes. It also summarized the biochemical mechanisms of soil SOC decomposition during the drainage/drought/rewetting processes of peatlands from the aspects of soil microbes, enzymes, and iron chemistry. Future research should link soil moisture with the biogeochemical mechanism of SOC decomposition, explore the mechanisms of biotic and abiotic properties in regulating molecular transformation processes of SOC, reveal the interaction mechanism of oxidase, phenols/SOC molecular structure, hydrolase during the periods of drainage/drought/rewetting. At the same time, future study should focus on the illuminating the trade-off mechanism between enzyme-SOC decomposition/carbon emission-iron during water level change using molecular biology methods combined with the iron REDOX process and the role of Fe-SOC in SOC of peatlands.