The field of ancient DNA (aDNA) is casting new light on many evolutionary questions. However, problems associated with the postmortem instability of DNA may complicate the interpretation of aDNA data. For example, in population genetic studies, the inclusion of damaged DNA may inflate estimates of diversity. In this paper, we examine the effect of DNA damage on population genetic estimates of ancestral population size. We simulate data using standard coalescent simulations that include postmortem damage and show that estimates of effective population sizes are inflated around, or right after, the sampling time of the ancestral DNA sequences. This bias leads to estimates of increasing, and then decreasing, population sizes, as observed in several recently published studies. We reanalyze a recently published data set of DNA sequences from the Bison (Bison bison/Bison priscus) and show that the signal for a change in effective population size in this data set vanishes once the effects of putative damage are removed. Our results suggest that population genetic analyses of aDNA sequences, which do not accurately account for damage, should be interpreted with great caution.