The percentage of dogs microchipped in Wales has risen from 69% to 94% since it became compulsory last April, Dogs Trust has said.
All dogs are now legally required to have been chipped by the time they are eight weeks old.
The charity said the improvement showed it was working but still meant 30,000 dogs would be untraceable if lost.
It added 8% of the 3,222 unclaimed strays in Wales' council kennels last year did not have up-to-date chips.
In 2015-16, before the law changed, 3,193 lost dogs were reunited with their owners in Wales - 15% of which were identified as a direct result of being chipped.
But its head of campaigns, Andrew Jackson, said the charity had noticed a "growing number" of breeders not microchipping puppies at eight weeks, or not registering their details.
He said this could cause problems for unsuspecting buyers who may not realise they should already have a chip registered to the breeder to ensure traceability.
The charity said 2,751 fines had been issued to UK dog owners for non-compliance since the law came in on 6 April 2016.
Most - 1,464 - were for dogs without chips, while 1,287 were issued to owners who had failed to update their details.
Mr Jackson said: "It is excellent to see that so many owners have taken action to get their dogs chipped - a painless process for dogs which many charities will carry out for free.
"However, still too many are not being reunited where owners have not updated their details when they move home or get a new phone number - heartbreaking for the owner and easily avoidable with a five-minute phone call.
"All dog owners have a responsibility to microchip their dog and it's very encouraging to see such a strong take-up - now owners must make sure this effort does not go to waste and check their dog's chip is up to date."
In February, a petition, backed by RSPCA Cymru, was launched calling for all councils to scan microchips of all pets found dead or alive.