The grey wolves (Canis lupus) of Finland have had a varied history, with a period of rapid population expansion after the mid-1990s followed by a decline with a current census size of about 140 wolves. Here, we investigate the impact of unstable population size and connectivity on genetic diversity and structure in a long-term genetic study of 298 Finnish wolves born in 1995–2009 and genotyped for 17 microsatellite loci. During the initial recovery and prior to population expansion, genetic diversity was high (1995–1997: LD-Ne = 67.2; Ho = 0.749; He = 0.709) despite a small census size and low number of breeders (Nc < 100; Nb < 10) likely reflecting the status of the Russian source population. Surprisingly, observed heterozygosity decreased significantly during the study period (t = −2.643, P = 0.021) despite population expansion, likely a result of an increase in inbreeding (FIS = 0.108 in 2007–2009) owing to a low degree of connectivity with adjacent Russian wolf population (m = 0.016–0.090; FST = 0.086, P < 0.001) and population crash after 2006. However, population growth had a temporary positive impact on Ne and number of family lines. This study shows that even strong population growth alone might not be adequate to retain genetic diversity, especially when accompanied with low amount of subsequent gene flow and population decline.