When it comes to choosing places to stay in Iceland, most people instantly jump to the country’s capital city. But there are plenty of towns and villages dotted around Iceland that offer ideal locations to base yourself on a holiday that many travelers don’t even bother to consider when deciding where to stay in Iceland.

You might be looking for a quiet, traditional Icelandic town to enjoy your trip to the country, or you may prefer to stay somewhere quirky or ideally positioned next to a top attraction. Whatever requirements are on your list, here’s our guide to nine of the best towns to stay in Iceland.


View of Reykjavik

We’ll start with a disclaimer; we know that Reykjavik isn’t a town. However, Iceland’s capital and largest city is undoubtedly the most popular place to stay in the country, so we thought it needed to be included in this list.

Reykjavik is found on the west coast of the country and has been the capital since the 19th century. It’s thought to have been the first permanent settlement on the island and is a hub of culture and tourism which means it’s busy all year round with visitors coming to enjoy the museum, galleries, shops, restaurants and entertainment venues.

As capital cities go, Reykjavik is relatively small, and you only need a couple of days to properly explore its colorful streets and range of attractions. However, it’s a great place to base yourself for a holiday in Iceland, as it’s close to the country’s airports and the starting location for a lot of popular sightseeing tours.


Akureyri is known as the ‘capital of the north’ of Iceland, so is an excellent place to stay if you’re wanting to explore this area of the country in particular. It’s also one of the prettiest places in Iceland, with both coastal and mountain scenery surrounding the town and offering breathtaking views all year round.

With one of the largest populations after Reykjavik, Akureyri is quite a large place to visit in Iceland that has a great range of accommodation options if you want to stay. Travelers embarking on a road trip of the whole island often choose Akureyri as a place to stop when visiting the northern attractions in Iceland or heading to a ski resort, but it’s also a top destination for whale watching on the coast.

The Botanical Gardens in Akureyri are one of the town’s highlights, featuring specimens of almost every plant that grows in Iceland. It’s also home to a couple of brilliant museums and galleries, as well as the beautiful Akureyri Church that overlooks the town for its vantage point on top of a hill.


Plane Wreck in Vik

Vík is known as one of the best places in Iceland to stay because of its stunning location on the southern coast of the island. It’s only a small village, but its popularity has meant that it’s very geared up for tourism and is home to quite a few brilliant shops and restaurants.

What makes Vík such a popular place to stay in Iceland is the unique scenery that surrounds the town. The beach near the village is made of black basalt which provides a very dramatic backdrop for photos, particularly because of the dark cliffs and sea stacks rising above the sand and the water.

One of the most photographed spots in Iceland is found close to Vík; the wreck of a United States Navy DC plane that ran out of fuel and crashed on the Sólheimasandur beach in 1973. It’s a bit of a walk from the village but is a truly dramatic sight to behold.


Selfoss is only about 30km outside of Reykjavik, and is a small town that makes a great alternative place to stay if you want to be in the south of the country near many of the best things to do, but don’t want to stay in Iceland’s capital city. The history of the town is in agriculture, and it still retains a peaceful atmosphere and slow pace of life that many visitors find particularly relaxing.

Located on the banks of the Olfusa River, there are plenty of great hiking opportunities around Selfoss. The Reykjadalur geothermal area is only a short distance away in Hveragerði, so if you’re looking for opportunities to enjoy outdoor bathing it’s a great place to stay.

A cultural highlight of Selfoss is the Sumar á Selfossi festival held on the second weekend in August each year where the town is decorated in bright colors and hosts a variety of events. You can enjoy local food stalls, live music, a craft market and a fireworks display.


Iceland Blue Lagoon

Keflavik is best known for being the location of Iceland’s international airport, so many tourists stay for a night or two when they arrive in the country. It’s only 50 km from Reykjavik on the Reykjanes peninsula and is a great town in Iceland to stay in if you’re only in the area for a couple of days.

One of the top attractions near Keflavik is the famous Blue Lagoon; a huge geothermal spa that is considered an absolute must-see by most Icelandic tourists. If you’re planning on spending a whole day at the sap then staying in Keflavik is the best way to make the most of your time and ensure you don’t have a long journey at the end of your visit.

The town itself doesn’t have that many attractions, but its history as the country’s ‘Capital of Rock n’ Roll’ means that there is a museum dedicated to Iceland’s musical history. Another popular museum is ‘Viking World’ which is home to plenty of artifacts and a full-size replica of a Viking ship.


Höfn is a small seaside town on the south coast of Iceland that is ideally positioned close to Iceland’s largest glacier, Vatnajökull. If you’ve come to the country for glacier hiking and want to tackle its most impressive ice structure, this is one of the best Icelandic towns to stay in.

Other nearby attractions include the Jokulsarlon Glacier Lagoon and Skaftatell Reserve in the Vatnajökull National Park, where you can watch huge chunks of ice detach themselves from the main glacier and float out into the ocean. The national park is a wonderful place for walking and is home to the impressive Svartifoss waterfall and Skaftafellsjökull glacier, offering opportunities to see two examples of the natural wonders Iceland is most famous for.

Höfn is at the very tip of a peninsula, so if you visit in the winter you may experience the sea that surrounds the town freezing over. It’s one of the only places in the country with a domestic airport, so has a well-developed tourist scene featuring restaurants, museums and galleries. 

If you’re planning on visiting the East Fjords on your trip then Egilsstaðir is one of the best places to stay in Iceland. It’s the largest town in this area of the country, found on the banks of the river Lagarfljót close to Hallormsstaðaskógur, Iceland’s largest forest.


Waterfall in Egilsstaðir

If you’re on a self-drive tour of the ring road then Egilsstaðir is one of your best options for an Icelandic town to stay as a rest stop on your trip. The variety of accommodation options is great, and there’s also a domestic airport if you want to fly to another part of the island to continue your trip.

Egilsstaðir itself has a range of shops, restaurants and cultural attractions, as well as a health center and college. It’s one of the prettiest places in Iceland thanks to its proximity to rivers, forests and fjords, and is a great spot for wildlife lovers. 


If you’re visiting Iceland with whale watching on your itinerary then Húsavík is by far the best place to stay. It’s well worth making the journey out to the north coast of the island if you’re visiting between March and December in order to spot the pods of whales that gather close to the shoreline, including species like Minke and Humpback whales.

Húsavík is also a popular place to stay for hiking fans, as there are lots of great trails close to the town that are passable all year round. You’ve got all of Skjálfandi Bay on your doorstep, and the outstanding Lake Mývatn is relatively close by if you want to visit a diverse area of natural beauty.

If you watched the Netflix film ‘Eurovision Song Contest: The Story of Fire Saga’ then you may recognize Húsavík as the filming location for the majority of this movie. It has grown in popularity since then but remains an Icelandic town with an authentic character and laid-back atmosphere.



Seyðisfjörður is one of the Icelandic town names that visitors tend to find hardest to pronounce, but once you’ve got your tongue around all of those Icelandic characters, we strongly recommend you visit the location. It’s one of the best towns to stay in Iceland if you’re looking for somewhere creative on your visit to the country, and is known as being the center for culture in East Iceland.

The locals in Seyðisfjörður are particularly friendly, so this is a very lively place to visit where you can be sure of unique recommendations from the people you meet. The creative energy of the town is translated through its colourful appearance, with unique wooden buildings dotted along the waterfront in a range of shades that contrast against the natural tones of the surrounding Mount Strandartindur and Mount Bjolfur.

Seyðisfjörður is positioned right at the tip of a fjord, offering wonderful views and 17 kilometers of water from top to bottom to explore. Above the town is a valley where the river Fjardara forms a series of waterfalls as it tumbles down the hillside, so you have plenty of beautiful natural scenery to explore nearby if you stay here.


Iceland’s towns are just as varied as the country’s scenery, so no matter what kind of experience you’re looking for when you visit, you’ll find somewhere perfect to stay. This list is only the tip of the iceberg, as there are over 60 Icelandic towns across the island, but the above recommendations are some of the most popular places that have the most to offer visitors to this spectacular country.

If you’re planning a holiday to Iceland and are looking for the best way to travel around its towns, renting a vehicle is your best option. Fara Car Rental has a range of options for travelers who want to explore Iceland at their own pace, so get in touch and speak to a member of our team about how we can help.