Accurate simulations of high‐latitude ecosystems are critical for confident Earth system model (ESM) projections of carbon cycle feedbacks to global climate change. Land surface model components of ESMs, including the E3SM Land Model (ELM), simulate vegetation growth and ecosystem responses to changing climate and atmospheric CO2 concentrations by grouping heterogeneous vegetation into like sets of plant functional types (PFTs). Many such models represent high‐latitude vegetation using only two PFTs (shrub and grass), thereby missing the diversity of vegetation growth forms and functional traits in the Arctic. Here, we use field observations of biomass and leaf traits across a gradient of plant communities on the Seward Peninsula in northwest Alaska to replace the original ELM configuration for the first time with nine Arctic‐specific PFTs. The newly developed PFTs include: (1) nonvascular mosses and lichens, (2) deciduous and evergreen shrubs of various height classes, including an alder PFT, (3) graminoids, and (4) forbs. Improvements relative to the original model configuration included greater belowground biomass allocation, persistent fine roots and rhizomes of nonwoody plants, and better representation of variability in total plant biomass across sites with varying plant communities and depth to bedrock. Simulations through 2100 using the RCP8.5 climate scenario and constant PFT fractional areas showed alder‐dominated plant communities gaining more biomass and lichen‐dominated communities gaining less biomass compared to default PFTs. Our results highlight how representing the diversity of arctic vegetation and confronting models with measurements from varied plant communities improves the representation of arctic vegetation in terrestrial ecosystem models.