Saline tidal wetlands are important sites of carbon sequestration and produce negligible methane (CH4) emissions due to regular inundation with sulfate-rich seawater. Yet, widespread management of coastal hydrology has restricted tidal exchange in vast areas of coastal wetlands. These ecosystems often undergo impoundment and freshening, which in turn cause vegetation shifts like invasion by Phragmites, that affect ecosystem carbon balance. Understanding controls and scaling of carbon exchange in these understudied ecosystems is critical for informing climate consequences of blue carbon restoration and/or management interventions. Here, we (1) examine how carbon fluxes vary across a salinity gradient (4–25 psu) in impounded and natural, tidally unrestricted Phragmites wetlands using static chambers and (2) probe drivers of carbon fluxes within an impounded coastal wetland using eddy covariance at the Herring River in Wellfleet, MA, United States. Freshening across the salinity gradient led to a 50-fold increase in CH4 emissions, but effects on carbon dioxide (CO2) were less pronounced with uptake generally enhanced in the fresher, impounded sites. The impounded wetland experienced little variation in water-table depth or salinity during the growing season and was a strong CO2 sink of −352 g CO2-C m−2 year−1 offset by CH4 emission of 11.4 g CH4-C m−2 year−1. Growing season CH4 flux was driven primarily by temperature. Methane flux exhibited a diurnal cycle with a night-time minimum that was not reflected in opaque chamber measurements. Therefore, we suggest accounting for the diurnal cycle of CH4 in Phragmites, for example by applying a scaling factor developed here of ~0.6 to mid-day chamber measurements. Taken together, these results suggest that although freshened, impounded wetlands can be strong carbon sinks, enhanced CH4 emission with freshening reduces net radiative balance. Restoration of tidal flow to impounded ecosystems could limit CH4 production and enhance their climate regulating benefits.