After a long and deliberate persecution, the grey wolf (Canis lupus) is slowly recolonizing its former areas in Europe, and the genetic consequences of this process are of particular interest. Wolves, though present in mainland Estonia for a long time, have only recently started to recolonize the country’s two largest islands, Saaremaa and Hiiumaa. The main objective of this study was to analyse wolf population structure and processes in Estonia, with particular attention to the recolonization of islands. Fifteen microsatellite loci were genotyped for 185 individuals across Estonia. As a methodological novelty, all putative wolf-dog hybrids were identified and removed (n = 17) from the dataset beforehand to avoid interference of dog alleles in wolf population analysis. After the preliminary filtering, our final dataset comprised of 168 “pure” wolves. We recommend using hybrid-removal step as a standard precautionary procedure not only for wolf population studies, but also for other taxa prone to hybridization. STRUCTURE indicated four genetic groups in Estonia. Spatially explicit DResD analysis identified two areas, one of them on Saaremaa island and the other in southwestern Estonia, where neighbouring individuals were genetically more similar than expected from an isolation-by-distance null model. Three blending areas and two contrasting transition zones were identified in central Estonia, where the sampled individuals exhibited strong local differentiation over relatively short distance. Wolves on the largest Estonian islands are part of human-wildlife conflict due to livestock depredation. Negative public attitude, especially on Saaremaa where sheep herding is widespread, poses a significant threat for island wolves. To maintain the long-term viability of the wolf population on Estonian islands, not only wolf hunting quota should be targeted with extreme care, but effective measures should be applied to avoid inbreeding and minimize conflicts with local communities and stakeholders.