Peatlands accumulated large carbon (C) stocks as peat in historical times. Currently however, many peatlands are on the verge of becoming sources with their C sequestration function becoming sensitive to environmental changes such as increases in temperature, decreasing water table and enhanced nitrogen deposition. Long term changes in vegetation composition are both, a consequence and indicator of future changes in C sequestration. Spatial continuous accurate assessment of the vegetation composition is a current challenge in keeping a close watch on peatland vegetation changes. In this study we quantified the fractional cover of three major plant functional types (PFTs; Sphagnum mosses, graminoids, and ericoid shrubs) in peatlands, using field spectroscopy reflectance measurements (400–2400 nm) on 25 plots differing in PFT cover. The data was validated using point intercept methodology on the same plots. Our results showed that the detection of open Sphagnum versus Sphagnum covered by vascular plants (shrubs and graminoids) is feasible with an R2 of 0.81. On the other hand, the partitioning of the vascular plant fraction into shrubs and graminoids revealed lower correlations of R2 of 0.54 and 0.57, respectively. This study was based on a dataset where the reflectance of all main PFTs and their pure components within the peatland was measured at local spatial scales. Spectrally measured species or plant community abundances can further be used to bridge scaling gaps up to canopy scale, ultimately allowing upscaling of the C balance of peatlands to the ecosystem level.