This paper examines the critical importance of peatlands in climate regulation, biodiversity conservation, and the provision of essential ecosystem services, emphasizing the urgent need for their preservation and restoration. Although peatlands cover just 3% of global land, they store 30% of the world’s terrestrial carbon, making them vital for mitigating climate change. However, activities such as agriculture, forestry, and peat extraction have caused significant degradation, compromising their ecological integrity and climate functions. This review makes a unique contribution by applying a systems thinking approach to synthesize the interconnected technical, environmental, and socioeconomic dimensions of peatland management, an often underrepresented perspective in existing literature. By offering a holistic and integrative analysis, it identifies key leverage points for effective and sustainable conservation and restoration strategies. This paper also explores the European Union’s policy response, including the EU Restoration Law and sustainability initiatives aimed at peatland recovery. It highlights the shift from peat use in energy production to its application in horticulture, reflecting growing demand for sustainable alternatives and eco-friendly restoration practices across Europe. Furthermore, this review addresses the environmental consequences of peat extraction, such as increased greenhouse gas emissions and biodiversity lossand emphasizes the need for robust EU legislation aligned with climate neutrality and biodiversity enhancement goals. It concludes by advocating for comprehensive research and proactive, policy-driven measures to ensure the long-term protection and sustainable use of these vital ecosystems.