It has been argued that demographic and environmental factors will cause small, isolated populations to become extinct before genetic factors have a significant negative impact. Islands provide an ideal opportunity to test this hypothesis because they often support small, isolated populations that are highly vulnerable to extinction. To assess the potential negative impact of isolation and small population size, we compared levels of genetic variation and fitness in island and mainland populations of the black-footed rock-wallaby (Petrogale lateralis [Marsupialia: Macropodidae]). Our results indicate that the Barrow Island population of P. lateralis has unprecedented low levels of genetic variation (H(e) = 0.053, from 10 microsatellite loci) and suffers from inbreeding depression (reduced female fecundity, skewed sex ratio, increased levels of fluctuating asymmetry). Despite a long period of isolation (~1600 generations) and small effective population size (N(e) ~15), demographic and environmental factors have not yet driven this population to extinction. Nevertheless, it has been affected significantly by genetic factors. It has lost most of its genetic variation and become highly inbred (F(e) = 0.91), and it exhibits reduced fitness. Because several other island populations of P. lateralis also exhibit exceptionally low levels of genetic variation, this phenomenon may be widespread. Inbreeding in these populations is at a level associated with high rates of extinction in populations of domestic and laboratory species. Genetic factors cannot then be excluded as contributing to the extinction proneness of small, isolated populations.