Staff at the Sydney-based tech firm learned more than one-fifth of their roles would be affected by a restructure via email on Wednesday morning.
Co-founder and chief executive Melanie Perkins said the firm needed to be "refound" after a year of slowed growth and technology disruptions.
"This is without doubt the hardest moment in our 13-year history," she wrote in the note, which has since been shared to Canva's website.
The union representing its employees said the news was a shock, particularly so soon before the Christmas break.
But the Professionals Australia union is demanding to know whether artificial intelligence is to blame for the cuts, amid concerns software firms are vulnerable to disruption.
"It's really important that large tech companies like Canva are honest about the impact that AI is having on jobs," the union's tech industry director Paul Inglis said.
"They owe it to all of us."
Ms Perkins said new technologies had transformed customer expectations, but did not name-check AI.
Asked to clarify, the firm said AI was informing the kinds of products it was building and how it delivered them, but roles performed by humans would not be delegated to AI.
"AI is changing what's possible for our community and the kinds of products we're now building," a spokesperson told AAP.
"These changes are about setting Canva up to build those products, not using AI to do the work of people who are leaving."
Since its start in 2013, Canva has been heralded as a diamond in the rough of Australia's tech startup community.
The company expanded its headcount to about 5700 staff across 37 countries, with an estimated valuation of US$US34.9 billion.
It operates a graphic design platform that allows its millions of users to create image and video assets, including with AI tools.
The question for its bottom line is whether text-to-image AI assistants can do what the partly paywalled platform does, albeit for free.
Canva's reluctance to task AI with work performed by humans puts it at odds with other tech firms that have recently undergone layoffs.
In March, Atlassian trimmed its headcount by 1600, claiming AI had changed the software giant's skills mix and staffing needs.
Weeks earlier, software logistics firm WiseTech Global announced plans to cut up to 2000 roles, since revised to 1700, as part of an AI efficiency drive.
Just how devastating the proliferation of affordable, rapidly improving and widely-accessible AI assistants may prove for Canva is not clear.
The threat could prove inescapable, managing director of advisory firm Revium Adam Barty said.
"It's pretty hard not to view AI as an existential threat to Canva's core business model," he told AAP.
But for Canva's biggest venture capital backer, Blackbird, the firm is well-poised to capture its benefits.
"We've backed Canva since the very beginning and we remain optimistic about its future and long-term potential," a spokesperson said.
It is not clear how many of the 1271 roles the firm expects to be impacted by the restructure will end up being cut.
Included in that figure are staff who have been asked to relocate, with Sydney set to become the main home for its product teams.
As it looks to streamline, the firm will move to increase in-person collaboration and consolidate overlapping functions.
Despite its reservations, the union welcomed the entitlements extended to departing employees.
Every worker who loses their job will be paid six months' salary, retain their healthcare entitlements for 12 months and can keep their laptops.
They can also apply for a $10,000 to fund future ventures.
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