Coastal wetlands are a significant carbon (C) sink since they store carbon in anoxic soils. This ecosystem service is impacted by hydrologic alteration and management of these coastal habitats. Efforts to restore tidal flow to former salt marshes have increased in recent decades and are generally associated with alteration of water inundation levels and salinity. This study examined the effect of water level and salinity changes on soil organic matter decomposition during a 60‐day incubation period. Intact soil cores from impounded fresh water marsh and salt marsh were incubated after addition of either sea water or fresh water under flooded and drained water levels. Elevating fresh water marsh salinity to 6 to 9 ppt enhanced CO2 emission by 50%−80% and most typically decreased CH4 emissions, whereas, decreasing the salinity from 26 ppt to 19 ppt in salt marsh soils had no effect on CO2 or CH4 fluxes. The effect from altering water levels was more pronounced with drained soil cores emitting ~10‐fold more CO2 than the flooded treatment in both marsh sediments. Draining soil cores also increased dissolved organic carbon (DOC) concentrations. Stable carbon isotope analysis of CO2 generated during the incubations of fresh water marsh cores in drained soils demonstrates that relict peat OC that accumulated when the marsh was saline was preferentially oxidized when sea water was introduced. This study suggests that restoration of tidal flow that raises the water level from drained conditions would decrease aerobic decomposition and enhance C sequestration. It is also possible that the restoration would increase soil C decomposition of deeper deposits by anaerobic oxidation, however this impact would be minimal compared to lower emissions expected due to the return of flooding conditions.