© 2020 by the authors. Licensee MDPI, Basel, Switzerland. The palm oil industry is one of the major producers of vegetable oil in the tropics. Palm oil is used extensively for the manufacture of a wide variety of products and its production is increasing by around 9% every year, prompted largely by the expanding biofuel markets. The rise in annual demand for biofuels and vegetable oil from importer countries has caused a dramatic increase in the conversion of forests and peatlands into oil palm plantations in Malaysia. This study assessed the area of forests and peatlands converted into oil palm plantations from 1990 to 2018 in the states of Sarawak and Sabah, Malaysia, and estimated the resulting carbon dioxide (CO2) emissions. To do so, we analyzed multitemporal 30-m resolution Landsat-5 and Landsat-8 images using a hybrid method that combined automatic image processing and manual analyses. We found that over the 28-year period, forest cover declined by 12.6% and 16.3%, and the peatland area declined by 20.5% and 19.1% in Sarawak and Sabah, respectively. In 2018, we found that these changes resulted in CO2 emissions of 0.01577 and 0.00086 Gt CO2-C yr−1, as compared to an annual forest CO2 uptake of 0.26464 and 0.15007 Gt CO2-C yr−1, in Sarawak and Sabah, respectively. Our assessment highlights that carbon impacts extend beyond lost standing stocks, and result in substantial direct emissions from the oil palm plantations themselves, with 2018 oil palm plantations in our study area emitting up to 4% of CO2 uptake by remaining forests. Limiting future climate change impacts requires enhanced economic incentives for land uses that neither convert standing forests nor result in substantial CO2 emissions.