Native across much of the Northern Hemisphere, Sphagnum fallax grows in bogs, fens, wet heaths, and other peat-forming wetlands. Those habitats are low in oxygen, very moist, and strongly acidic, so the plant is adapted to conditions that stay saturated rather than freely draining.
The best soil for sphagnum is peaty, soft, and rich in organic matter, with a silty structure that holds water evenly. It does not rely on deep anchoring roots, so an airy but constantly wet substrate suits it better than dense mineral soil. That moisture-retentive, acidic sphagnum soil matches how it grows naturally at the surface of wetlands.