Mosses are a major component of many ecosystems at high latitudes and significantly impact ecosystem processes. Erosion is a serious problem in Iceland. Restoration of subarctic heathlands therefore demands understanding of the role of mosses in that process. We tested the following hypotheses 1) at an early stage the shallow moss has a positive effect on soil processes, 2) as moss depth increases, its insulation slows down the processes and affects the growth and reproduction of the vascular plants. Relationships between moss depth and selected soil properties (soil temperature, moisture, microbial biomass carbon and available forms of nitrogen) were examined in the Icelandic highlands. We compared three communities in a chronosequence: a barren eroded site, a thirty years old restoration site and an intact dwarf birch heath community. The interaction between moss cover and four species of vascular plants (Betula nana, Empetrum nigrum, Silene acaulis and Carex rupestris) was studied in a moss removal experiment. Preliminary results show that the moss depth and cover, plays an important role in heathland restoration in these communities. The moss acts as an insulator for soil temperature and retains soil moisture, hence positively effecting the soil microbial biomass carbon and nitrogen availability in the chronosequence. Vascular plant responses to moss removal depended on growth form.