Arctic and subarctic ecosystems are changing rapidly in species composition and functioning as they warm twice as fast as the global average. It has been suggested that tree-less boreal landscapes may shift abruptly to tree-dominated states as climate warms. Yet, we insufficiently understand the conditions and mechanisms underlying tree establishment in the subarctic and arctic regions to anticipate how climate change may further affect ecosystem structure and functioning. We conducted a field experiment to assess the role of permafrost presence, micro-topography and shrub canopy on tree establishment in almost tree-less subarctic peatlands of northern Finland. We introduced seeds and seedlings of four tree-line species and monitored seedling survival and environmental conditions for six growing seasons. Our results show that once seedlings have emerged, the absence of permafrost can enhance early tree seedling survival, but shrub cover is the most important driver of subsequent tree seedling survival in subarctic peatlands. Tree seedling survival was twice as high under an intact shrub canopy than in open conditions after shrub canopy removal. Under unclipped control conditions, seedling survival was positively associated with dense shrub canopies for half of the tree species studied. These strong positive interactions between shrubs and trees may facilitate the transition from today’s treeless subarctic landscapes towards tree-dominated states. Our results suggest that climate warming may accelerate this vegetation shift as permafrost is lost, and shrubs further expand across the subarctic.