The fate of carbon (C) contained within permafrost in boreal forest environments is an important consideration for the current and future carbon cycle as soils warm in northern latitudes. Currently, little is known about the microbiology or chemistry of permafrost soils that may affect its decomposition once soils thaw. We tested the hypothesis that low microbial abundances and activities in permafrost soils limit decomposition rates compared with active layer soils. We examined active layer and permafrost soils near Fairbanks, AK, the Yukon River, and the Arctic Circle. Soils were incubated in the lab under aerobic and anaerobic conditions. Gas fluxes at −5 and 5 °C were measured to calculate temperature response quotients (Q10). The Q10 was lower in permafrost soils (average 2.7) compared with active layer soils (average 7.5). Soil nutrients, leachable dissolved organic C (DOC) quality and quantity, and nuclear magnetic resonance spectroscopy of the soils revealed that the organic matter within permafrost soils is as labile, or even more so, than surface soils. Microbial abundances (fungi, bacteria, and subgroups: methanogens and Basidiomycetes) and exoenzyme activities involved in decomposition were lower in permafrost soils compared with active layer soils, which, together with the chemical data, supports the reduced Q10 values. CH4 fluxes were correlated with methanogen abundance and the highest CH4 production came from active layer soils. These results suggest that permafrost soils have high inherent decomposability, but low microbial abundances and activities reduce the temperature sensitivity of C fluxes. Despite these inherent limitations, however, respiration per unit soil C was higher in permafrost soils compared with active layer soils, suggesting that decomposition and heterotrophic respiration may contribute to a positive feedback to warming of this eco region.