Whether or not individuals in cities and adjacent rural areas form separate populations depends on the origin of urbanized individuals. The rural individuals may have simply gradually invaded the city. Alternatively, the urbanization depended on arrival of individuals with specific adaptations for city life. A population within the city could also remain separated from adjacent rural populations if there are physical or behavioural dispersal barriers lowering the possibility of genetic exchange between individuals. All this is linked to dispersal behaviour of the species as gene flow is determined by distances moved during dispersal. In this study, we used microsatellite markers to evaluate whether or not Eurasian red squirrel (Sciurus vulgaris) individuals in an urban environment are genetically separated from their sub-urban/rural counterparts. Using radio-telemetry, we also studied natal dispersal distances of urban red squirrels to evaluate the potential for gene flow within the city. We observed no indication that urban squirrels had been genetically isolated from rural squirrels. In addition, increased amount of built area did not explain differentiation between urban individuals, further indicating that there were no barriers restricting movement. Still, the genetic differentiation within the city was increased and natal dispersal distances relatively short, perhaps indicating lack of need to move long distances in the urban environment. We conclude that urban and adjacent rural squirrels were part of the same larger population with gene flow in and out from the city. Yet, urbanization was related to increased genetic differentiation, indicating different spatial genetic structure in urban and rural populations.