Despite the importance of peatlands as a major store of sequestered carbon and the role of fungi in releasing sequestered C, we know little about the community structure of fungi in peatlands. We investigated these across a gradient of naturally regenerating peatland vegetation using denaturing gradient gel electrophoresis (DGGE) and clone libraries of fragments of the fungal rRNA internal transcribed spacer (ITS) region. Significant changes in the fungal community structure of peat samples at different stages of regeneration were observed, which relate to the composition of the vegetation recolonizing these sites. Cloning and sequence analysis also demonstrated a potential shift in the relative abundance of the main fungal phyla. Some of the clones identified to genus level were highly related to fungi known to play a role in the degradation of plant litter or wood in similar ecosystems and/or form mycorrhizal associations. In addition, several fungal isolates highly related to peat clones were obtained, and their enzymic capacity to degrade structural plant tissues was assessed. Together, these results suggest that the fungal community composition of peat may be an important indicator of the status of regeneration and potential carbon sequestration of cutover peatlands.