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Premise: The expected concomitant increase in multiple stressors such as herbivory and drought may threaten peatland ecosystems. How Sphagnum, the ecological engineers of peatlands, responds to combined stressors remains largely unexplored. Here we aimed to clarify resource allocations in Sphagnum during concomitant herbivory and drought. Methods: S. magellanicum and S. fuscum were exposed to drought and herbivory together or separately in laboratory experiments and analyzed for growth (biomass production and net photosynthetic rate), defense (phenolics in leachates and phenolics in extraction) and nonstructural carbohydrates (soluble sugar and starch) in relation to untreated controls. Results: Herbivory and drought had significant interactive effects on Sphagnum growth and defense. In both species, drought without herbivory reduced the phenolics in leachate, but with herbivory increased phenolics, indicating a synergistic effect between herbivory and drought on Sphagnum defense. Both stressors significantly decreased biomass production, with the combined stress having a more negative effect. Interestingly, a growth–defense trade‐off was found in the drought treatment of both Sphagnum species, but disappeared in the wet treatment. Conversely, a trade‐off between soluble sugars and phenolics was found in the wet but not in the drought treatment, suggesting that soluble sugars may play a role in inducing the defense and hence mask the growth–defense trade‐off in peat mosses. Conclusions: Our results emphasize that predicting the impact of combined stressors on peat moss traits is complex and challenging. Future models should account for the effects of multiple environmental stressors to guide peatland conservation under climate warming. [ABSTRACT FROM AUTHOR]