Water use efficiency (WUE) plays a pivotal role in connecting the carbon and water cycles and represents the amount of water used by plants or ecosystems to achieve carbon sequestration. The response of WUE to climate warming and its underlying mechanisms remain unclear. Here, we examined the effects of varying levels of warming on carbon fluxes, water fluxes, and WUE in an alpine peatland, with Blysmus sinocompressus and Carex secbrirostris as dominant species. Open-top chambers were utilized to simulate two levels of warming: low-level warming (TL) and high-level warming (TH). The carbon dioxide and water fluxes were monitored over a growing season (June to September). Gradient warming significantly decreased both gross primary productivity (GPP) and net ecosystem carbon exchange (NEE); GPP was 10.05% and 13.31% lower and NEE was 21.00% and 30.00% lower in the TL and TH treatments, respectively, than in the control. Warming had no significant effect on soil evaporation, and plant transpiration and evapotranspiration were 36.98% and 23.71% higher in the TL treatment than in the control, respectively; this led to decreases of 31.38% and 28.17% in canopy water use efficiency (WUEc) and ecosystem water use efficiency (WUEe), respectively. Plant transpiration was the main factor affecting both WUEe and WUEc in response to warming. The findings underscore the essential function of water fluxes in regulating WUE and enhance our understanding of carbon–water coupling mechanisms under climate change.