Genomic instability although frequently deleterious is also an important mechanism for microbial adaptation to environmental change. Although widely studied in bacteria in archaea the effect of genomic instability on organism phenotypes and fitness remains unclear. Here we use DNA segmentation methods to detect and quantify genome-wide copy number variation (CNV) in large compendia of high throughput datasets in a model archaeal species Halobacterium salinarum. CNV hotspots were identified throughout the genome. Some hotspots were strongly associated with changes in gene expression suggesting a mechanism for phenotypic innovation. In contrast CNV hotspots in other genomic loci left expression unchanged suggesting buffering of certain phenotypes. The correspondence of CNVs with gene expression was validated with strain- and condition-matched transcriptomics and DNA quantitation experiments at specific loci. Significant correlation of CNV hotspot locations with the positions of known IS elements suggested a mechanism for generating genomic instability. Given the efficient recombination capabilities in H. salinarum despite stability at the single nucleotide level these results suggest that genomic plasticity mediated by IS element activity can provide a source of phenotypic innovation in extreme environments.