Terrestrial methane (CH4) emissions may have increased during the Paleocene-Eocene Thermal Maximum (PETM; ca. 56 Ma) and promoted additional warming, especially in the high latitudes. Although there is evidence for increased CH4 cycling in a single Northern Hemisphere site, whether enhanced methane cycling was globally widespread is unknown because there have been no subsequent investigations. The mechanism of CH4 release is also unknown because a direct comparison between temperature and CH4 cycling has so far not been possible. Here we use biomarkers to reconstruct temperature change and CH4 cycling in a new PETM-aged succession in New Zealand. Our results indicate that the stable carbon isotopic composition (δ13C) of bacterial hopanoids decreased to very low values (−60‰) during the onset of the PETM, indicating enhanced consumption of CH4. These values are much lower than found in modern wetlands and suggest a major perturbation of the CH4 cycle during the onset of the PETM. Low hopanoid δ13C values do not persist into the early Eocene, despite evidence for elevated temperatures. This indicates that the terrestrial CH4 cycle operates differently during transient compared to gradual warming events. Enhanced CH4 cycling during the PETM may help to resolve the temperature data-model mismatch in the high latitudes and could yield higher estimates of Earth system sensitivity than expected from CO2 alone.