Habitat fragmentation is one of the major contributors to the loss of biodiversity worldwide. However, relatively little is known about its more immediate impacts on within-patch population processes such as social structure and mating systems, whose alteration may play an important role in extinction risk. We investigated the impacts of habitat fragmentation due to the establishment of an exotic softwood plantation on the social kin structure and breeding system of the Australian marsupial carnivore, Antechinus agilis. Restricted dispersal by males in fragmented habitat resulted in elevated relatedness among potential mates in populations in fragments, potentially increasing the risk of inbreeding. Antechinus agilis nests communally in tree hollows; these nests are important points for social contact between males and females in the mating season. In response to elevated relatedness among potential mates in fragmented habitat, A. agilis significantly avoided sharing nests with opposite-sex relatives in large fragment sites (but not in small ones, possibly due to limited nest locations and small population sizes). Because opposite-sex individuals shared nests randomly with respect to relatedness in unfragmented habitat, we interpreted the phenomenon in fragmented habitat as a precursor to inbreeding avoidance via mate choice. Despite evidence that female A. agilis at high inbreeding risk selected relatively unrelated mates, there was no overall increased avoidance of related mates by females in fragmented habitats compared to unfragmented habitats. Simulations indicated that only dispersal, and not nonrandom mating, contributed to inbreeding avoidance in either habitat context. However, habitat fragmentation did influence the mating system in that the degree of multiple paternity was reduced due to the reduction in population sizes and population connectivity. This, in turn, reduced the number of males available to females in the breeding season. This suggests that in addition to the obvious impacts of reduced recruitment, patch recolonization and increased genetic drift, the isolation of populations in habitat patches may cause changes in breeding behaviour that contribute to the negative impacts of habitat fragmentation.