Thermokarst features, such as thaw ponds, are hotspots for methane emissions in warming lowland tundra. Presently we lack quantitative knowledge on the formation rates of thaw ponds and subsequent vegetation succession, necessary to determine their net contribution to greenhouse gas emissions. This study sets out to identify development trajectories and formation rates of small‐scale (<100 m2), shallow arctic thaw ponds in north‐eastern Siberia. We selected 40 ponds of different age classes based on a time‐series of satellite images and measured vegetation composition, microtopography, water table, and thaw depth in the field and measured age of colonizing shrubs in thaw ponds using dendrochronology. We found that young ponds are characterized by dead shrubs, while older ponds show rapid terrestrialization through colonization by sedges and Sphagnum moss. While dead shrubs and open water are associated with permafrost degradation (lower surface elevation, larger thaw depth), sites with sedge and in particular Sphagnum display indications of permafrost recovery. Recruitment of Betula nana on Sphagnum carpets in ponds indicates a potential recovery toward shrub‐dominated vegetation, although it remains unclear if and on what timescale this occurs. Our results suggest that thaw ponds display potentially cyclic vegetation succession associated with permafrost degradation and recovery. Pond formation and initial colonization by sedges can occur on subdecadal timescales, suggesting rapid degradation and initial recovery of permafrost. The rates of formation and recovery of small‐scale, shallow thaw ponds have implications for the greening/browning dynamics and carbon balance of this ecosystem.