The impact of past global climate change on local terrestrial ecosystems and their vegetation and soil organic matter (OM) pools is often non-linear and poorly constrained. To address this, we investigated the response of a temperate habitat influenced by global climate change in a key glacial refuge, Lake Ohrid (Albania, Macedonia). We applied independent geochemical and palynological proxies to a sedimentary archive from the lake over the penultimate glacial-interglacial transition (MIS 6–5) and the following interglacial (MIS 5e-c), targeting lake surface temperature as an indicator of regional climatic development and the supply of pollen and biomarkers from the vegetation and soil OM pools to determine local habitat response. Climate fluctuations strongly influenced the ecosystem, however, lake level controls the extent of terrace surfaces between the shoreline and mountain slopes and hence local vegetation, soil development and OM export to the lake sediments. There were two phases of transgressional soil erosion from terrace surfaces during lake-level rise in the MIS 6–5 transition that led to habitat loss for the locally dominant pine vegetation as the terraces drowned. Our observations confirm that catchment morphology plays a key role in providing refuges with low groundwater depth and stable soils during variable climate.