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 original population of Iceland was of Nordic and Gaelic origin. This is evident from literary evidence dating from the settlement period as well as from later scientific studies such as blood type and genetic analyses. One such genetics study has indicated that the majority of the male settlers were of Nordic origin while the majority of the women were of Gaelic origin.

Iceland has extensive genealogical records dating back to the late 17th century and fragmentary records extending back to the Age of Settlement. The biopharmaceutical company deCODE genetics has funded the creation of a genealogy database which attempts to cover all of Iceland's known inhabitants. It views the database, called Íslendingabók, as a valuable tool for conducting research on genetic diseases, given the relative isolation of Iceland's population.

The population of the island is believed to have varied from 40,000–60,000 in the period ranging from initial settlement until the mid-19th century. During that time, cold winters, ash fall from volcanic eruptions, and bubonic plagues adversely affected the population several times. According to Bryson (1974), there were 37 famine years in Iceland between 1500 and 1804. The first census was carried out in 1703 and revealed that the population was then 50,358. After the destructive volcanic eruptions of the Laki volcano during 1783–84, the population reached a low of about 40,000. Improving living conditions have triggered a rapid increase in population since the mid-19th century—from about 60,000 in 1850 to 320,000 in 2008. Iceland has a relatively young population for a developed country, with one out of five people being 14 years-old or younger. With a fertility rate of 2.1, Iceland is one of only a few European countries with a birth rate sufficient for long-term population growth (see table on the left).

In December 2007, 33,678 people (13.5% of the total population) living in Iceland had been born abroad, including children of Icelandic parents living abroad. Around 19,000 people (6% of the population) held foreign citizenship. Polish people make up the largest minority group by a considerable margin, and still form the bulk of the foreign workforce. About 8,000 Poles now live in Iceland, 1,500 of them in Reyðarfjörður where they make up 75% of the workforce who are constructing the Fjarðarál aluminium plant. The recent surge in immigration has been credited to a labour shortage due to the booming economy at the time, as well as to the lifting of restrictions on the movement of people from the countries that were a part of the 2004 enlargement of the European Union. Large-scale construction projects in the east of Iceland (see Kárahnjúkar Hydropower Project) have also brought in many people whose stay is expected to be temporary. Many Polish immigrants were also considering leaving in 2008 as a result of the Icelandic financial crisis.

The southwest corner of Iceland is the most densely populated region. It is also the location of the capital Reykjavík, the northernmost national capital in the world. The largest towns outside the Greater Reykjavík area are Akureyri and Reykjanesbær, although the latter is relatively close to the capital.

Some 500 Icelanders under the leadership of Erik the Red colonized Greenland among the existing paleo-Eskimo inhabitants in the late 10th century. The total population reached a high point of perhaps 5,000 and developed independent institutions before disappearing by 1500. From Greenland the Norsemen launched expeditions to settle in Vinland, but these attempts to colonise North America were soon abandoned in the face of hostility from the indigenous peoples. Emigration to the United States and Canada began in the 1870s. Today, Canada has over 88,000 people of Icelandic descent, while there are more than 40,000 Americans of Icelandic descent, according to the 2000 US census.

Iceland is divided into regions, constituencies, counties, and municipalities. There are eight regions which are primarily used for statistical purposes; the district court jurisdictions also use an older version of this division. Until 2003, the constituencies for the parliamentary elections were the same as the regions, but by an amendment to the constitution, they were changed to the current six constituencies:

• Reykjavík North and Reykjavík South (city regions);
• Southwest (four non-contiguous suburban areas around Reykjavík);
• Northwest and Northeast (northern half of Iceland, split); and,
• South (southern half of Iceland, excluding Reykjavík and suburbs).

The redistricting change was made in order to balance the weight of different districts of the country, since previously a vote cast in the sparsely populated areas around the country would count much more than a vote cast in the Reykjavík city area. The imbalance between districts has been reduced by the new system, but still exists.

Iceland's 23 counties are, for the most part, historical divisions. Currently, Iceland is split up among 26 magistrates (sýslumenn, singular sýslumaður) who represent government in various capacities. Among their duties are tax collection, administering bankruptcy declarations, and performing civil marriages. After a police reorganisation in 2007, which combined police forces in multiple counties, about half of them are in charge of police forces.

There are 75 municipalities in Iceland which govern local matters like schools, transport and zoning.needed] These are the actual second-level subdivisions of Iceland, as the constituencies have no relevance except in elections and for statistical purposes. Reykjavík is by far the most populous municipality, about four times more populous than Kópavogur, the second one.

In 2007, Iceland was the seventh most productive country in the world per capita (US$54,858), and the fifth most productive by GDP at purchasing power parity ($40,112). About 85 percent of total primary energy supply in Iceland is derived from domestically produced renewable energy sources. Utilization of abundant hydroelectric and geothermal power has made Iceland the world's largest electricity producer per capita. Historically, Iceland's economy depended heavily on fishing, which still provides 40% of export earnings and employs 7% of the work force. The economy is vulnerable to declining fish stocks and drops in world prices for its main material exports: fish and fish products, aluminium, and ferrosilicon. Whaling in Iceland has been historically significant. Iceland still relies heavily on fishing, but its importance is diminishing from an export share of 90% in the 1960s to 40% in 2006.

Until the 20th century, Iceland was among the poorest countries in Western Europe. Currently, it remains one of the most developed countries in the world. Strong economic growth had led Iceland to be ranked first in the United Nations' Human Development Index report for 2007/2008, although as of 2011 its HDI rating had fallen to 14th place as a result of the economic crisis. Nevertheless, according to the Economist Intelligence Index of 2011, Iceland has the 2nd highest quality of life in the world. Based on the Gini coefficient, Iceland also has one of the lowest rates of income inequality in the world, and when adjusted for inequality, its HDI ranking climbs to 5th place. Iceland's unemployment rate has declined consistently since the crisis, with 4.8% of the labour force being unemployed as of June 2012, compared to 6% in 2011 and 8.1% in 2010.

Many political parties remain opposed to EU membership, primarily due to Icelanders' concern about losing control over their natural resources (particularly fisheries). The national currency of Iceland is the Icelandic króna (ISK).

Iceland's economy has been diversifying into manufacturing and service industries in the last decade, including software production, biotechnology, and finance; industry accounts for around a quarter of economic activity, while services comprise close to 70%. Despite the decision to resume commercial whale hunting in 2006, the tourism sector is expanding, especially in ecotourism and whale-watching. On average, Iceland receives around 1.1 million visitors annually, which is more than three times the native population. Iceland's agriculture industry, accounting for 5.4% of GDP, consists mainly of potatoes, green vegetables (in greenhouses), mutton and dairy products. The financial centre is Borgartún in Reykjavík, which hosts a large number of companies and three investment banks. Iceland's stock market, the Iceland Stock Exchange (ISE), was established in 1985.

Iceland is ranked 27th in the 2012 Index of Economic Freedom, lower than in prior years but still among the freest in the world. As of 2012, it ranks 30th in the World Economic Forum's Global Competitive Index, one place higher than in 2011. According to INSEAD's Global Innovation Index, Iceland is the 11th most innovative country in the world. Unlike most Western European countries, Iceland has a flat tax system: the main personal income tax rate is a flat 22.75%, and combined with municipal taxes, the total tax rate equals no more than 35.72%, not including the many deductions that are available. The corporate tax rate is a flat 18%, one of the lowest in the world. There is also a value added tax, whereas a net wealth tax was eliminated in 2006. Employment regulations are relatively flexible and the labour market is one of the freest in the world. Property rights are strong and Iceland is one of the few countries where they are applied to fishery management. Like other welfare states, taxpayers pay various subsidies to each other, but with spending being less than in most European countries.

Despite low tax rates, agricultural assistance is the highest among OECD countries and a potential impediment to structural change. Also, health care and education spending have relatively poor returns by OECD measures, though improvements have been made in both areas. The OECD Economic Survey of Iceland 2008 had highlighted Iceland's challenges in currency and macroeconomic policy. There was a currency crisis that started in the spring of 2008, and on 6 October trading in Iceland's banks was suspended as the government battled to save the economy. The latest assessment by the OECD determined that Iceland has made progress in many areas, particularly in creating a sustainable fiscal policy and restoring the health of the financial sector; however, challenges remain in making the fishing industry more efficient and sustainable, as well as in improving monetary policy in order to address inflation. Iceland's public debt remains around 120% as of 2012, the 10th highest in the world by proportion of national GDP.

Icelandic culture has its roots in Norse traditions. Icelandic literature is popular, in particular the sagas and eddas that were written during the High and Late Middle Ages. Centuries of isolation have helped to insulate the country's Nordic culture from external influence; a prominent example is the preservation of the Icelandic language, which remains the closest to Old Norse of all modern Scandinavian languages except Faroese.

In contrast to other Nordic countries, Icelanders place relatively great importance on independence and self-sufficiency; in a public opinion analysis conducted by the European Commission, over 85% of Icelanders found independence to be "very important," compared to 47% of Norwegians, 49% of Danes, and an average of 53% for the EU25. Icelanders also have a very strong work ethic, working some of the longest hours of any industrialized nation.

According to a poll conducted by the OECD, 66% of Icelanders were satisfied with their lives, while 70% believed that their lives will be satisfying in the future. Similarly, 83% of people in Iceland reported having more positive experiences in an average day than negative ones, compared to an OECD average of 72%, which makes Iceland one of the happiest countries in the OECD. A more recent 2012 survey found that around three quarters of respondents stated they were satisfied with their lives, compared to a global average of about 53%.

Iceland is liberal with regard to LGBT rights issues. In 1996, the Icelandic parliament passed legislation to create registered partnerships for same-sex couples, conferring nearly all the rights and benefits of marriage. In 2006, parliament voted unanimously to grant same-sex couples the same rights as heterosexual couples in adoption, parenting and assisted insemination treatment. On 11 June 2010, the Icelandic parliament amended the marriage law, making it gender neutral and defining marriage as between two individuals, making Iceland one of the first countries in the world to legalise same-sex marriage. The law took effect on 27 June 2010. The amendment to the law also means registered partnerships for same-sex couples are now no longer possible, and marriage is their only option—identical to the existing situation for opposite-sex couples.

Icelanders are known for their deep sense of community: an OECD survey found that 98% believe they know someone they could rely on in a time of need, higher than in any other industrialized country. Similarly, only 6% reported "rarely" or "never" socializing with others. This high level of social cohesion is attributed to the small size and homogeneity of the population, as well as to a long history of harsh survival in an isolated environment, which reinforced the importance of unity and cooperation.

Egalitarianism is highly valued among the people of Iceland, with income inequality being among the lowest in the world. The constitution explicitly prohibits the enactment of noble privileges, titles, and ranks. Everyone is addressed by their first name. As with other Nordic countries, equality between the sexes is very high, Iceland is consistently ranked among the top three countries in the world for women to live in.