Animal dispersal and subsequent settlement is a key process in the life history of many organisms, when individuals use demographic and environmental cues to target post-dispersal habitats where fitness will be highest. To investigate the hypothesis that environmental disturbance (habitat fragmentation) may alter these cues, we compared dispersal patterns of 60 red squirrels (Sciurus vulgaris) in three study sites that differ in habitat composition and fragmentation. We determined dispersal distances, pre- and post-dispersal habitat types and survival using a combination of capture–mark–recapture, radiotracking and genetic parentage assignment. Most (75%) squirrels emigrated from the natal home range with mean dispersal distance of 1,014 ± 925 m (range 51–4,118 m). There were no sex-related differences in dispersal patterns and no differences in average dispersal distance, and the proportion of dispersers did not differ between sites. In one of the sites, dispersers settled in patches where density was lower than in the natal patch. In the least fragmented site, 90% of animals settled in the natal habitat type (habitat cuing) against 44–54% in the more strongly fragmented sites. Overall, more squirrels settled in the natal habitat type than expected based on habitat availability, but this was mainly due to individuals remaining within the natal wood. In the highly fragmented landscape, habitat cuing among emigrants did not occur more frequently than expected. We concluded that increased habitat fragmentation seemed to reduce reliable cues for habitat choice, but that dispersing squirrels settled in patches with lower densities of same-sex animals than at the natal home range or patch, independent of degree of fragmentation.