The capacity of natural selection to generate adaptive changes is according to the Fundamental Theorem of Natural Selection proportional to the additive genetic variance in fitness. In spite of its importance for development of new adaptations to a changing environment, processes affecting the magnitude of the genetic variance in fitness-related traits are poorly understood. Here we show that the red-white colour polymorphism in female barn owls is subject to density-dependent selection at the phenotypic and genotypic level. The diallelic melanocortin-1 receptor (MC1R) gene explained a large amount of the phenotypic variance in reddish colouration in the females (R^2 = 59.8 %). Red individuals (RR genotype) were selected for at low densities, while white individuals (WW genotype) were favoured at high densities and were less sensitive to changes in density. We show that this density-dependent selection favours white individuals and predicts fixation of the white allele in this population at longer time scales without immigration or other selective forces. Still, fluctuating population density will cause selection to fluctuate and periodically favour red individuals. These results suggest how balancing selection caused by fluctuations in population density can be a general mechanism affecting the level of additive genetic variance in natural populations.