Understanding microbial niche differentiation along ecological and geochemical gradients is critical for assessing the mechanisms of ecosystem response to hydrologic variation and other aspects of global change. The lineage-specific biogeochemical roles of the widespread phylum Acidobacteria in hydrologically sensitive ecosystems, such as peatlands, are poorly understood. Here, we demonstrate that Acidobacteria sublineages in Sphagnum peat respond differentially to redox fluctuations due to variable oxygen (O₂) availability, a typical feature of hydrologic variation. Our genome-centric approach disentangles the mechanisms of niche differentiation between the Acidobacteria genera Holophaga and Terracidiphilus in response to the transient O₂ exposure of peat in laboratory incubations. Interlineage functional diversification explains the enrichment of the otherwise rare Holophaga in anoxic peat after transient O₂ exposure in comparison to Terracidiphilus dominance in continuously anoxic peat. The observed niche differentiation of the two lineages is linked to differences in their carbon degradation potential. Holophaga appear to be primarily reliant on carbohydrate oligomers and amino acids, produced during the prior period of O₂ exposure via the O₂-stimulated breakdown of peat carbon, rich in complex aromatics and carbohydrate polymers. In contrast, Terracidiphilus genomes are enriched in diverse respiratory hydrogenases and carbohydrate active enzymes, enabling the degradation of complex plant polysaccharides into monomers and oligomers for fermentation. We also present the first evidence for the potential contribution of Acidobacteria in peat nitrogen fixation. In addition to canonical molybdenum-based diazotrophy, the Acidobacteria genomes harbor vanadium and iron-only alternative nitrogenases. Together, the results better inform the different functional roles of Acidobacteria in peat biogeochemistry under global change. IMPORTANCE Acidobacteria are among the most widespread and abundant members of the soil bacterial community, yet their ecophysiology remains largely underexplored. In acidic peat systems, Acidobacteria are thought to perform key biogeochemical functions, yet the mechanistic links between the phylogenetic and metabolic diversity within this phylum and peat carbon transformations remain unclear. Here, we employ genomic comparisons of Acidobacteria subgroups enriched in laboratory incubations of peat under variable O₂ availability to disentangle the lineage-specific functional roles of these microorganisms in peat carbon transformations. Our genome-centric approach reveals that the diversification of Acidobacteria subpopulations across transient O₂ exposure is linked to differences in their carbon substrate preferences. We also identify a previously unknown functional potential for biological nitrogen fixation in these organisms. This has important implications for carbon, nitrogen, and trace metal cycling in peat systems.