Central China has experienced stronger summer monsoon during warm periods such as Marine Isotope Stages (MIS) 1 and 3, and weaker summer monsoon during cool periods such as MIS 2. The evolution history of Dajiuhu subalpine peatland in central China can help investigate how the expansion and shrinkage of peatland were associated with monsoonal strength over the last glacial–interglacial cycle. Here we apply bulk organic carbon and molecular biomarkers (hopane and n-alkane) to reconstruct the evolution history for the Dajiuhu peatland over the past 40,000 yr. The results indicate fluctuations between lacustrine and peat-like deposition during MIS 3, steady lacustrine deposition during MIS 2, and peatland initiation and expansion during MIS 1 in the Dajiuhu peatland. Therefore, at the glacial–interglacial scale, warmer summer and cooler winter conditions in interglacial periods are crucial to trigger peat deposition, whereas reduced evaporation in glacial period instead of decreased monsoonal-driven precipitation would have played a predominant role in the regional effective moisture balance. However, within the Holocene (MIS 1), monsoonal precipitation changes appear to be the main controller on millennial-scale variations of water-table level of the Dajiuhu peatland.