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Where to Stay in Iceland | Best Areas & Hotels

Where to Stay in Iceland | Best Areas & Hotels

Trying to decide where to stay in Iceland? Reykjavik is a common choice due to its size, but there are many towns spread across this majestic island.

Where to Stay in Iceland

Iceland sits between Greenland to the west and Scandinavia to the east. With over 3,000 miles of rugged coastline and close to 40,000 square miles of land, Iceland offers a lot to explore.

Iceland is often recognized for its distinct geography. The coastline is rigid and includes 13 named peninsulas. Around these peninsulas are many fjords, which are long inlets from the surrounding seas that form between high cliffs and mountains. 

The most urban area is Reykjavik, which has a population of over 130,000 people. Close to one-third of residents live in the capital city. 

Outside of the capital, you’ll find a wide selection of towns with access to Iceland’s outdoor wonders. You’ll see geysers, volcanoes, glaciers, black beaches, waterfalls, and natural hot springs as you head away from the city. 

The island is divided into 7 regions with a total of 63 towns and villages, which can make choosing where to stay in Iceland a little tricky for first-time visitors. 

The 6 Main Parts of Iceland

Cartoon map of where to stay in Iceland based on what you want to do

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Iceland has lots of things to see and do, but you should first choose a place to stay. Some of the best areas for tourists include the following:

  1. Reykjavik: Best for first-time visitors
  2. Akureyri: Best for nightlife and hiking
  3. Keflavik: Best for smaller crowds and modern amenities
  4. Selfoss: Best for visiting natural attractions 
  5. Grundarfjordur: Best for families and seeing the Northern Lights
  6. Vestmannaeyjar: Best for bird and whale watching 

Iceland’s Best Parts and Cities

While Iceland isn’t the biggest country, where you stay can impact your travel plans. Let’s explore the most popular parts of Iceland to find which city or town works best for your trip.

1. Reykjavik

Blue lagoon in Reykjavik, one of the best places to stay in Iceland

Blue Planet Studio/Shutterstock

Reykjavik is the capital of Iceland and the only city, as the rest of the island contains towns, villages, and small communities. It’s often the first stop for visitors coming from Europe and North America and the most recognizable location on the island.

Reykjavik is a bustling city with a vibrant atmosphere. The variety of trendy cafes, modern museums, and hip nightclubs make it a top choice for all types of visitors. 

You can learn more about the history of the country at the National Museum of Iceland or get a better view of the city with a flyover aerial tour. For shopping and dining, head to Skolavordustigur and Laugavegur streets.

These two streets contain most of the city’s shops and restaurants. Reykjavik is a great place for first-time visitors that want to know more about Icelandic culture. If you want to spend your trip exploring the outdoors, consider staying in one of the island’s towns.

Things to Do

  • Visit the National Museum of Iceland to learn about the entire history of Iceland, from the first settlers to the present day. 
  • Browse Skolavordustigur and Laugavegur streets for shopping and dining.
  • Soak in the warm, geothermal waters at the Blue Lagoon.
  • Learn about the Vikings through the immersive exhibits at the Saga Museum.

Where to Eat

  • Reykjavik Kitchen is a top restaurant with lunch and dinner options, including a wide selection of soups.
  • Sjavargrillio is a classy Icelandic restaurant with a romantic atmosphere and a high-priced menu.
  • ROK is a casual restaurant with local and global dishes and a variety of desserts. 

Budget Hotels

  • Hotel Orkin: Affordable hotel located near the center of the city. The rooms are small but cozy and include access to a communal lounge and sitting area. 
  • Hotel Fron: This low-cost hotel has minimalist décor and rooms with private kitchens. You can choose between hotel rooms and apartments, depending on the length of your stay.

Mid-Range Hotels

  • Center Hotels Plaza: Located in Old Town, this hotel has modern rooms with hardwood floors and minibars. It’s also a short walk from the National Gallery and other popular attractions. 
  • Grandi by Center Hotels: This hotel is found at the western edge of the city near the harbor. The rooms feature vibrant colors and comfortable furnishings. 

Luxury Hotels

  • Canopy by Hilton Reykjavik City Centre: Located just two minutes away from the main shopping area, this hotel offers stylish accommodations and a convenient location. It’s one of the fanciest hotels in Iceland and the most expensive.
  • Radisson Blu 1919 Hotel: This is another premium hotel near the center of the city. The rooms are spacious and offer views of the downtown area. 

2. Akureyri

Akureyri countryside, one of our top picks when considering where to stay in Iceland

Harry Painter/Shutterstock

Akureyri is a town at the mouth of the Eyjafjordur Fjord on the northern coast of Iceland. People often call the town the capital of the north, as it’s the second-largest town in Iceland. 

As with Reykjavik, Akureyri has numerous museums, small cafes, and interesting sites. It’s typically considered the best place for nightlife in Iceland, thanks to the selection of bars and clubs in the center of town.

Due to the size of the town, you’ll find a wider selection of modern amenities, including nice hotels and first-class restaurants. The town is also surrounded by natural beauty.

The area includes many hiking trails, including a scenic trail that takes you along the Glera River that runs through Akureyri. You can also see a variety of plant life at the Akureyri Botanical Gardens near the southern end of the town. 

Things to Do

  • Spend the day hiking the trails around Akureyri.
  • Walk the grounds of the Akureyri Botanical Gardens to view over 7,000 species of plants, including over 400 native species.  
  • View the unique Laufas Turf Houses, which includes a row of homes featuring turf and grass on the roofs. 
  • Travel to the peak of Mount Sulur for a sweeping view of Akureyri and the surrounding mountains. 

Where to Eat

Budget Hotels

  • Centrum Hotel: Stay a short distance from the Akureyri Public Swimming Pool at this low-cost hotel. The rooms are small but clean and modern. 
  • Hotel North: This hotel is outside of the town of Akureyri, placing you further from the attractions. However, it’s also affordable and secluded.

Mid-Range Hotels

  • Hotel Akureyri: This charming hotel is on the main street, allowing you to quickly reach any spot in Akureyri. You’ll also enjoy a-la-carte menu items with food grown from the hotel’s onsite organic farm.
  • Icelandair Hotel Akureyri: The modern furnishings and large windows make the guestrooms at this hotel bright and inviting. It’s a comfortable place to stay near the center of the town. 

Luxury Hotels

  • Hotel Kea by Keahotels: While Akureyri doesn’t have luxury hotels, this location stands out for its sleek décor and world-class service. It’s a four-star hotel on one of the main pedestrian streets. 
  • Hotel Akureyri Dynheimar: This hotel is in the same building as the mid-range “Hotel Akureyri” but features larger rooms and access to an onsite bar. Some of the rooms also include a view of the garden. 

3. Keflavik

Rustic lighthouse in Keflavik, one of the best places to stay in Iceland

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Keflavik, which means “Driftwood Bay”, is one of three towns that merged to form the Reykjanesbaer municipality. It’s found near the end of the Reykjanes peninsula. The town is about a 45-minute drive from Reykjavik.

It’s also home to the Keflavik Airport, which is the largest airport on the island. As one of the larger towns, Keflavik has several popular attractions, including Viking World Museum and the Keflavik Maritime Center Museum. 

If you travel further from the town, you can explore a variety of natural attractions, such as the Bergid Cliffs. Several walking trails take you to the tops of the cliffs, which provide a view of the surrounding harbor and coastline.

Keflavik is also the capital of Iceland’s music scene, leading to the nickname “the Liverpool of the North”. The Iceland Museum of Rock ‘n’ Roll provides a closer look at the country’s music history.

Keflavik is perfect for avoiding crowds while still enjoying the comforts of a moderate-sized town. Yet, the area has less nightlife compared to the capital and a few of the other towns. 

Things to Do

Where to Eat

  • Olsen has affordable food and a laid back atmosphere. It’s a popular lunch spot near the sea. 
  • Fernando’s is an Italian Restaurant near the harbor with dine-in and takeout options. 
  • Antons Mamma Mia is a family restaurant that serves burgers, pizza, and local cuisine.

Budget Hotels

  • Eldey Airport Hotel: This family-run hotel is a short trip from the airport and one of the most affordable places to stay in Keflavik. The rooms are cozy and receive lots of sunshine during the day. 
  • Nupan Deluxe: This small hotel is within walking distance of the main shopping area in Keflavik. Some rooms include a seating area and a private bathroom while others include a shared bathroom facility. 

Mid-Range Hotels

  • Lighthouse Inn: The Lighthouse Inn is right next to the lighthouse in Gardur. It’s further from the center of Keflavik but a fun place to stay. 
  • Hotel Jazz: You can check-in and out of this hotel without talking to an employee. It’s also a short distance from the seaside promenade and many restaurants and shops. 

Luxury Hotels

4. Selfoss

Selfoss waterfall in Iceland, one of the best places to stay when visiting there

Andrew Mayovskyy/Shutterstock

Selfoss is a small town located about an hour east of Reykjavik by car. A tall mountain overlooks the town, which is the cultural hub of the southwest. The town holds many festivals and outdoor events, including the Summer in Selfoss Festival.

You can explore most of the town in a day, but the surrounding area offers many additional things to see and do. From Selfoss, you can easily reach Kerid Crater, Reykjafoss Waterfall, or the southern coast. 

The southern coast of Iceland includes many more waterfalls and miles of rugged coastline. You can take day trips to some of the coastal towns or hike the nearby trails that take you to falls and natural hot springs. 

Staying in Selfoss is a great option for exploring Iceland’s landscape, but offers fewer amenities compared to a stay in one of the larger towns.

Things to Do

  • Visit Kerid Crater, which is one of the most famous volcanic craters on the island.
  • View the majestic Reykjafoss Waterfall or sit in the nearby hot spring. 
  • Enjoy the festivities during the Summer in Selfoss Festival, which is held in early August of each year. 

Where to Eat

  • Krisp Restaurant offers a wide selection of international cuisine, including American cheeseburgers with fries.
  • Tryggvaskali is a high-end restaurant with authentic Icelandic cuisine. 
  • Matarlyst Café-Restaurant-Bar has a little bit of everything with dine-in and curbside pickup options. 
  • Selfoss also has a KFC, if you’re in the mood for fried chicken.

Budget Hotels

  • Hotel Eldhestar: Enjoy the solitude of this spacious hotel in the town of Olfus, which is a short drive west of Selfoss. Amenities include horse riding tours and an outdoor wooden hot tub.
  • Bella Apartments & Rooms: Located a short drive from the airport, this building includes hotel rooms and apartment rentals. Get a room with a balcony or a terrace for a view of the town.

Mid-Range Hotels

  • Frost and Fire Hotel: Located near the geothermal springs in Hveragerdi, this hotel resembles a secluded high-end retreat. The rooms are brightly decorated and feature views of the Varma River. 
  • Hotel Ork: With spacious, comfortable rooms and an onsite restaurant, this hotel is a top pick for families. It also has an outdoor pool, hot tub, and sauna, along with a wide range of amenities. 

Luxury Hotels

  • Hotel South Coast: This is one of the only hotels in the town of Selfoss, as most of the other recommendations are in neighboring towns. It’s a four-star hotel with views of the city, a sauna, and a 24-hour front desk. 
  • 360 Hotel & Thermal Baths: Located on the edge of Selfoss, this four-star hotel offers luxurious accommodations with views of the surrounding landscape. It’s a secluded spot with its own spa, sauna, and onsite restaurant with vegetarian and dairy-free options.

5. Grundarfjordur

One of our top picks for where to stay in Iceland, Grundarfjordur, with waterfalls and mountains in the background

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Grundarfjordur is a western town located between the sea and a mountain range. The mountains form a small peninsula that contains Grundarfjordur and several other small towns. It’s more rural compared to the previous towns, which means fewer hotels, restaurants, and shops.

Yet, Grundarfjordur is another great place to stay for those that want to see more natural attractions. Mount Kirkjufell overlooks the town and is one of the most iconic natural landmarks in Iceland. 

Near the base of the mountain, you’ll find Kirkjufellsfoss Waterfalls. It’s a series of waterfalls that often freeze over during the winter season.

Grundarfjordur also offers hiking and fun things to do with the family, including several playgrounds and a large swimming pool. As one of the smaller towns, Grundarfjordur is a great place to watch the Northern Lights.

The area has fewer people and buildings, which means fewer lights and a better view of the sky. You can view the Aurora Borealis from late August to May but October to April is typically the prime period for seeing the Northern Lights. 

Things to Do

  • Hike the trails around Mount Kirkjufell to discover lookout points with panoramic views of the coastline.
  • Check out the Kirkjufellsfoss Waterfalls near the base of the mountain.
  • Travel outside of the town to watch for the Northern Lights.
  • Enjoy some of the available outdoor activities, such as horseback riding and ice climbing. 

Where to Eat

  • Bjargarsteinn Mathus is the best spot in town for seafood but is relatively expensive.
  • 59 Bistro Bar is a casual dining restaurant with limited seating but great food at decent prices. 
  • Lysuholl is a small restaurant with local cuisine and is housed in the same building as 59 Bistro Bar. 

Budget Hotels

  • Hotel Rjukandi: This hotel has tiny rooms at very low prices but it’s further from the center of Grundarfjordur. Highlights include an in-house restaurant, a hotel bar, and a garden. 
  • Helgrindur Guesthouse: Step out on the balcony for fresh air and views of the city from this affordable guesthouse. Each room has an attached bathroom and coffee machine.

Mid-Range Hotels

  • Hotel Fransiskus Stykkisholmi: Located across from the Sugandisey Island Lighthouse, this quaint hotel has cozy rooms, a church, and multiple breakfast options. 
  • Arnarstapi Hotel: You may get a glimpse of the Northern Lights from this hotel in Snaefellsbaer. It’s a short drive from Grundarfjordur and the Snaefellsjokull National Park.

Luxury Hotels

  • Fosshotel Hellnar: As Grundarfjordur doesn’t have luxury accommodations, you may want to try this eco-friendly hotel in nearby Hellnar. Enjoy dinner at the onsite restaurant, which serves traditional Icelandic cuisine and a variety of organic beers and wines. 
  • Hotel Budir: This charming hotel is a short drive from the volcano, but you may want to spend most of your time indoors. The hotel has a warm, cozy atmosphere and a dining room where the staff serves a variety of seafood and lamb dishes. 

6. Vestmannaeyjar

Vestmannaeyjar, one of the best parts of Iceland to stay in, as viewed from the coast with breathtaking scenery

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Vestmannaeyjar means “Westman Islands” and refers to several islands off the southern coast of Iceland. Underwater volcanic eruptions formed several islands. Surtsey, the youngest island, was formed less than 60 years ago.

Heimaey, the largest island, is a popular tourist destination. It’s also the only inhabited island of the Westman Islands. People often come to see the Atlantic Puffins, which are found throughout the island.

However, the best place to see nesting puffins is the Great Cape. The cape also has a lookout point and a few paths for getting a better view of the cliffs. Whale watching is another popular activity on Heimaey.

You can book a boat tour and take a trip around the island to look for humpback, blue, minke, and other species of whale. 

Heimaey is larger than some of the towns in Iceland and includes a nice selection of restaurants, museums, and hotels. It’s great for singles, couples, families, and anyone else that wants to see a different side of Iceland. 

Things to Do

  • Book a boat tour to go whale watching or bird watching around the Westman Islands.
  • Climb the Eldfell Volcano and feel the warm ground coming from the mountain slopes.
  • Take a trip to the Eldheimar Museum to learn about the devastating 1973 volcanic eruption. 

Where to Eat

  • Slippurinn is a large restaurant and top choice for Icelandic cuisine on the Westman Islands. 
  • Gott is a family restaurant with burgers, duck, chicken, and wraps. 
  • Canton-Chinese is a Chinese restaurant with fresh fish, chips, and low prices. 

Budget Hotels

  • Glamping & Camping: Located on the outskirts of town, this remote retreat offers fantastic views of the mountainous landscape. It’s a semi-rustic cabin with a shared facility nearby that includes a kitchen, bathroom, and laundry machines.
  • Ofanleiti Cottages: These charming cottages offer views of the sea and a private bathroom. You also get a patio with views of the garden, a kitchenette, and a fridge. 

Mid-Range Hotels

  • Hotel Vestmannaeyjar: The stylish interior and remote location make this hotel a top choice for anyone staying on the Westman Islands. Unwind with a dip in a hot tub or a sauna. 
  • The New Post Office: The minimalist, monochrome décor gives this hotel a unique vibe. Each room has a patio, kitchen, dining area, and seating area.

Luxury Hotels

  • Luxury Pier Apartments: Luxury apartments are the classiest places to stay on Westman Islands. This set of apartments includes spacious accommodations with sleek, stylish décor and lots of natural hardwood. It’s right next to the sea and offers views of the mountains and city. 
  • Luxury Ocean Villas: Another set of luxury apartments, this location is on the west side of the island and a little more remote. Enjoy spectacular views of the sea from your large villa with four bedrooms and two bathrooms.

Where Should You Stay in Iceland?

Iceland is a wonderful country with a seemingly endless list of gorgeous natural attractions, from hot springs and waterfalls to geysers and volcanoes. If you’re looking to party or stay in an urban part of the country, Reykjavik, Keflavik, and Akureyri are your best options.

Heimaey on the Westman Islands (Vestmannaeyjar) also has a quite large downtown area with shops and cafes. Grundarfjordur and Selfoss are smaller towns, but great for hiking and exploring the outdoors. 

Thinking about how you want to spend your trip can help with deciding where to stay in Iceland. Next, pick a spot and book your accommodations to start planning your vacation.