Bioenergy crop cultivation on former peat extraction areas is a potential after-use option that provides a source of renewable energy while mitigating climate change through enhanced carbon (C) sequestration. This study investigated the full C and greenhouse gas (GHG) balances of fertilized (RCG-F) and nonfertilized (RCG-C) reed canary grass (RCG; Phalaris arundinacea) cultivation compared to bare peat (BP) soil within an abandoned peat extraction area in western Estonia during a dry year. Vegetation sampling, static chamber and lysimeter measurements were carried out to estimate above- and belowground biomass production and allocation, fluxes of carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O) in cultivated strips and drainage ditches as well as the dissolved organic carbon (DOC) export, respectively. Heterotrophic respiration was determined from vegetation-free trenched plots. Fertilization increased the above- to belowground biomass production ratio and the autotrophic to heterotrophic respiration ratio. The full C balance (incl. CO2, CH4 and DOC fluxes from strips and ditches) was 96, 215 and 180 g C m−2 yr−1 in RCG-F, RCG-C and BP, respectively, suggesting that all treatments acted as C sources during the dry year. The C balance was driven by variations in the net CO2 exchange, whereas the combined contribution of CH4 and DOC fluxes was <5%. The GHG balances were 3.6, 7.9 and 6.6 t CO2 eq ha−1 yr−1 in RCG-F, RCG-C and BP, respectively. The CO2 exchange was also the dominant component of the GHG balance, while the contributions of CH4 and N2O were <1% and 1–6%, respectively. Overall, this study suggests that maximizing plant growth and the associated CO2 uptake through adequate water and nutrient supply is a key prerequisite for ensuring sustainable high yields and climate benefits in RCG cultivations established on organic soils following drainage and peat extraction.