Population bottlenecks can restrict variation at functional genes, reducing the ability of populations to adapt to new and changing environments. Understanding how populations generate adaptive genetic variation following bottlenecks is therefore central to evolutionary biology. Genes of the major histocompatibility complex (MHC) are ideal models for studying adaptive genetic variation due to their central role in pathogen recognition. While de novo MHC sequence variation is generated by point mutation, gene conversion can generate new haplotypes by transferring sections of DNA within and across duplicated MHC loci. However, the extent to which gene conversion generates new MHC haplotypes in wild populations is poorly understood. We developed a 454 sequencing protocol to screen MHC class I exon 3 variation across all 13 island populations of Berthelot’s pipit (Anthus berthelotii). We reveal that just 11–15 MHC haplotypes were retained when the Berthelot’s pipit dispersed across its island range in the North Atlantic ca. 75 000 years ago. Since then, at least 26 new haplotypes have been generated in situ across populations. We show that most of these haplotypes were generated by gene conversion across divergent lineages, and that the rate of gene conversion exceeded that of point mutation by an order of magnitude. Gene conversion resulted in significantly more changes at nucleotide sites directly involved with pathogen recognition, indicating selection for functional variants. We suggest that the creation of new variants by gene conversion is the predominant mechanism generating MHC variation in genetically depauperate populations, thus allowing them to respond to pathogenic challenges.