Often referred to as the “Third Pole,” China's Qinghai–Tibetan Plateau developed large amounts of peatland owing to its unique alpine environment. As a renewable resource, peat helps to regulate the climate as well as performing other important functions. However, in recent years, intensifying climate change and anthropogenic disturbances have resulted in peatland degradation and consequently made sustainable development of peatland more difficult. This review summarizes peatland ecological and economic functions, including carbon sequestration, biodiversity conservation, energy supplies, and ecotourism. It identifies climate change and anthropogenic disturbances as the two key factors attributing to peatland degradation and ecosystem carbon loss. Current problems in environmental degradation and future challenges in peatland management under the effects of global warming are also discussed and highlighted.