Peatlands are naturally acidic environments due to the decomposition of organic material, with porewater and subsequent outflow typically ranging from 4–6 pH units. However, the potential acidity of peatlands can be increased by the presence of sulfides, particularly pyrite (FeS2), which releases acidity when oxidised. There is the risk that if peat soils that contain appreciable sulfides were to become oxidised the buffering capacity may be overwhelmed, releasing acidity into downstream environments. This research investigated the potential acidity of a montane peatland in the Greater Blue Mountains World Heritage Area and possible risks posed to downstream ecosystems. Peat cores were examined at Mount Banks peatland, and this site was found to be mildly acidic (4.5–5.5 pH units), with mean chromium reducible sulfur values of 0.03% (in line with Australian trigger guidelines for acid sulfate soils). Sulfide formation places montane peatlands at risk of acidity generation in the event of landscape dehydration and oxidation. This is of particular concern as south-eastern Australia is subject to extreme climatic events, including droughts and bushfires. Acidity released downstream can alter metal bioavailability and significantly impact biotic communities (including vegetation, aquatic species, and microbial communities). Mount Banks peatland may not be strictly classified as containing acid sulfate soils, however, the current landscape reflects sulfide retention. Whilst these conditions are not expected to be common in the Blue Mountains, this study highlights the importance of maintaining natural peatland hydrology and considering the potential acidity of peatlands in the face of changing climatic regimes.