Iceland is located at the juncture of the North Atlantic and Arctic oceans. The main island is entirely south of the Arctic Circle, which passes through the small Icelandic island of Grímsey off the main island's northern coast. The country lies between latitudes 63° and 67° N, and longitudes 25° and 13° W.

Iceland is closer to continental Europe than to mainland North America; thus, the island is generally included in Europe for historical, political, cultural, and practical reasons.

Geologically the island includes parts of both continental plates. The closest body of land is Greenland (290 km (180 mi)). The closest bodies of land in Europe are the Faroe Islands (420 km (260 mi)); Jan Mayen Island (570 km (350 mi)); Shetland and the Outer Hebrides, both about 740 km (460 mi); and the Scottish mainland and Orkney, both about 750 km (470 mi). The mainland of Norway is about 970 km (600 mi) away.

Iceland is the world's 18th largest island, and Europe's second largest island after Great Britain. The main island is 101,826 km² (39,315 sq mi), but the entire country is 103,000 km² (39,768.5 sq mi) in size, of which 62.7% is tundra. There are thirty minor islands in Iceland, including the lightly populated Grímsey and the Vestmannaeyjar archipelago. Lakes and glaciers cover 14.3% of its surface; only 23% is vegetated. The largest lakes are Þórisvatn (Reservoir): 83-88 km² (32.0-34.0 sq mi) and Þingvallavatn: 82 km² (31.7 sq mi); other important lakes include Lagarfljót and Mývatn. Jökulsárlón is the deepest lake, at 248 m (814 ft). Geologically, Iceland is part of the Mid-Atlantic Ridge, a ridge along which the oceanic crust spreads and forms new oceanic crust. This part of the mid-ocean ridge is located above a mantle plume, causing Iceland to be subaerial (above the surface of the sea). The ridge marks the boundary between the Eurasian and North American Plates, and Iceland was created by rifting and accretion through volcanism along the ridge.

Many fjords punctuate Iceland's 4,970 kilometres (3,088 miles) long coastline, which is also where most settlements are situated. The island's interior, the Highlands of Iceland, is a cold and uninhabitable combination of sand, mountains and lava fields. The major towns are the capital city of Reykjavík, along with its outlying towns of Kópavogur, Hafnarfjörður and Garðabær, nearby Reykjanesbær where the international airport is located, and the town of Akureyri in northern Iceland. The island of Grímsey on the Arctic Circle contains the northernmost habitation of Iceland.

Iceland has three national parks: Vatnajökull National Park, Snæfellsjökull National Park, and Þingvellir National Park. The country is considered a "strong performer" in environmental protection, having been ranked 13th in Yale University's Environmental Performance Index of 2012.

The country has a population of 321,857 and a total area of 103,000 km² (40,000 sq mi), which makes it the most sparsely populated country in Europe. The capital and largest city is Reykjavík, with the surrounding areas in the southwestern region of the country being home to two-thirds of the country's population. Reykjavík is the most northern capital in the world. Iceland is volcanically and geologically active. The interior consists mainly of a plateau characterised by sand and lava fields, mountains and glaciers, while many glacial rivers flow to the sea through the lowlands. Iceland is warmed by the Gulf Stream and has a temperate climate despite a high latitude just outside the Arctic Circle.

According to Landnámabók, the settlement of Iceland began in AD 874 when the chieftain Ingólfr Arnarson became the first permanent Norse settler on the island. Others had visited the island earlier and stayed over winter. During the following centuries, Norsemen settled Iceland, bringing with them thralls of Gaelic origin. From 1262 to 1918, Iceland was part of the Norwegian and later the Danish monarchies. The country became independent in 1918 and a republic was declared in 1944.

Until the 20th century, the Icelanders relied largely on fishing and agriculture, and the country was one of the least developed in the region. Industrialisation of the fisheries and aid through the United States' Marshall Plan following World War II brought prosperity and, by the 1990s, Iceland had developed as one of the wealthiest and most developed nations in the world. In 1994, Iceland became party to the European Economic Area, which supported diversification of the economy into economic and financial services.

Iceland has a free-market economy with relatively low corporate taxes compared to other OECD countries. It maintains a Nordic social welfare system that provides universal health care and tertiary education for its citizens. In 2013, it was ranked as the 13th most-developed country in the world by the United Nations' Human Development Index.

In 2008, the nation's entire banking system systemically failed, affected by the worldwide crisis. This resulted in substantial political unrest. In the wake of the crisis, Iceland instituted "capital controls" that made it impossible for many foreigners to get their money out of the country. Though designed to be temporary, the controls remain and are among the biggest hurdles for attracting international investment in the Icelandic economy. Iceland ranks high in economic and political stability, though it is still in the process of recovering from the crisis. Gender equality is highly valued in Iceland. In the Global Gender Gap Report 2012, Iceland holds the top spot for the least gap, closely followed by Finland, Norway and Sweden.

Icelandic culture is founded upon the nation's Norse heritage. Most Icelanders are descendants of Norse and Gaelic settlers. Icelandic, a North Germanic language, is descended from Old Norse and is closely related to Faroese and some West Norwegian dialects. The country's cultural heritage includes traditional Icelandic cuisine, poetry, and the medieval Icelanders' sagas. Among NATO members, Iceland has the smallest population and is the only one with no standing army. Its lightly armed Coast Guard is in charge of its defences.