The drying of wetlands due to natural and anthropogenic factors has become a serious problem globally. Understanding the tolerance of the dominant hygrophytic plants to drought would help in establishing effective management for the maintenance, protection and restoration of wetlands. We conducted a greenhouse experiment to explore the effect of soil drought on the growth of Carex lasiocarpa, a dominant species in peatlands in northeastern China. Three different drought treatments were included. The soil water contents were measured. Results showed that there was little impact of shorter drying treatment on the morphological and physiological characteristics of C. lasiocarpa, but significant impact of longer drying treatment on it. The negative effects of longer drying treatment on belowground growth were much higher than aboveground. Drying not only decreased the biomass but also changed the resource allocation, decreasing the root:shoot ratio. The rhizome length of C. lasiocarpa significantly decreased, and the tiller number also showed a decreasing trend. Our results suggest that this species could resist soil drying. But continuous soil drying would reduce carbon accumulation and increase carbon allocation aboveground, which would result in a decline in carbon storage in C. lasiocarpa peatlands.