Small populations are vulnerable to extinction due to extrinsic factors such as increasing levels of habitat disturbance and isolation, as well as environmental variation. We investigated the response of a small population of a nationally threatened Australian arboreal mammal, the yellow-bellied glider (Petaurus australis; 560 g), to the construction of a new motorway, which increased the isolation of this population. We contrasted the small population with two larger populations in conservation reserves in the broader region. We conducted surveys in 6 of 10 years at 92 sites across the three forest areas to describe changes in population occupancy. A severe drought occurred in year 6 of our study. The probability of occupancy in year 1 was lower (0.22) in the small population compared to the larger reserve populations (0.52). The drought had a profound influence on all populations, with lower detection leading into the drought, before detection recovered to pre-drought levels in the reserves. Additional survey effort using audio-recorders was employed to detect individuals in the small population of this highly vocal species, but none were detected 4 years after the drought, suggesting local extinction had occurred. Whilst motorway construction increased population isolation, it appears the drought was probably the most consequential factor given its adverse influence on all populations. The three forest areas also contained the coastal sugar glider (Petaurus breviceps; 100 g), which has much larger population sizes (~28 times larger in the small population area) and a higher reproductive rate compared to the yellow-bellied glider. Its probability of occupancy (> 0.6) did not differ among the three populations and was unaffected by the drought. The contrasting response in the two species highlights the importance of life history traits when populations are fragmented.