The Arctic is experiencing rapid warming, which among other processes results in increasing erosion of coastal permafrost and the release of ancient organic carbon (OC) into the Arctic Ocean, which in turn might result in greenhouse gas emissions following its decomposition. Supply of terrigenous organic matter to the ocean affects near‐shore nutrient concentrations and the composition of microbial communities—highlighting the need to understand the fate of permafrost‐derived carbon in this fragile ecosystem. We incubated material from coastal Yedoma permafrost for 85 days in seawater collected during the Arctic Century expedition. During this experiment, 2.8 ± 1.4% of OC from coastal Yedoma was respired to CO2. Radiocarbon analysis revealed that 88 ± 15% of the released CO2 originated from ancient material (∼40,000 years), indicating that degradation of permafrost OC reintroduces old carbon into the short‐term carbon cycle. Hence, the permafrost climate feedback may be enhanced in the coming decades when coastal erosion accelerates. Additionally, 0.9 ± 0.3% of Yedoma OC was leached as dissolved OC. The observed net production of inorganic nitrogen during the incubation could potentially provide a negative feedback by stimulating primary production. Bacterial community analysis showed a succession of primary responders to biolabile substrates (e.g., Psychrobacter and Colwellia) followed by secondary consumers of less biolabile substrates (e.g., Maribacter and Pseudohongiella), plus a potential establishment of permafrost associated‐bacteria on particles. Overall, our data show that OC input from thawing permafrost stimulates bacterial dynamics, with likely implications for regional biogeochemical cycles and the Earth's climate.