Divided between Europe and North America, Iceland is a country packed with natural beauty and Nordic culture! Though often taken as a stopover trip, Iceland is well worth a visit in its own right thanks to huge volcanoes, cascading waterfalls and geothermal hot pools. It also has some interesting cultural highlights just waiting to be discovered around every corner.
Iceland is quite sparsely populated, so figuring out where exactly to stay can be tricky. Though most visitors are suggested to hire a car, building an itinerary based on multiple cities is a great way around this. A lot of tourists base themselves in Reykjavik, but there are plenty of other great towns across the country.
That is why we’ve built this guide! We have figured out the seven best areas in Iceland for you to consider for your upcoming trip to the scenic island.
So let’s just get started!
Quick Tips – Where to Stay in Iceland
- Best neighborhood in Iceland for your first time – Reykjavik
- Where to stay in Iceland close to everything – Keflavik
- Best neighborhood in Iceland for families – Höfn
- Where to stay in Iceland on a budget – Hafnarfjörður
- Best neighborhood in Iceland for couples – Vík
- Where to stay in Iceland for local culture – Akureyri
- Best neighborhood in Iceland for fjörds – Ísafjörður
In a hurry? Here’s my top neighborhood for first timers:
- Tjörnin, the large pond in the centre of the city, is a great place for a relaxing walk around the city
- The National Gallery of Iceland is the largest collection of Icelandic art in the country and also houses some international pieces
- Visit Dillon Rock Bar, the most famous nightclub in the entire country
Table of Contents
- Where to Stay in Iceland
- Iceland 7 Best Neighborhoods to Stay in
- #1 Reykjavik – Best neighbourhood in Iceland for your first time
- #2 Keflavik – Where to stay in Iceland close to everything
- #3 Höfn – Best neighbourhood in Iceland for families
- #4 Hafnarfjörður – Where to stay in Iceland on a budget
- #5 Vík – Best neighbourhood in Iceland for couples
- #6 Akureyri – Where to stay in Iceland for local culture
- #7 Ísafjörður – Best neighbourhood in Iceland for fjörds
Where to Stay in Iceland
Looking for a specific place to stay? These are our highest recommendations for places to stay in Iceland.
Best Hostel in Iceland: Vibrant Iceland Hostel
This excellent hostel is located in Hafnarfjörður, the most budget-friendly town on the island! It has a laid back feel, making it perfect for backpackers that want to meet up with other travellers during their time in the country. It is also well located, with easy connections to the capital and beyond.
Need to spend some quality time with fellow backpackers? Get your fix by staying at one of these amazing hostels in Iceland!View on HostelWorld
Best Budget Hotel in Iceland: Hótel Kría
Located in the heart of Vík, Hótel Kría is perfect for young couples visiting the country that want to save on accommodation! It is only a stone’s throw away from the famous black sand beach and is surrounded by great restaurants and local attractions. The breakfast buffet is also well rated by previous guests.View on Booking.com View on HotelsCombined View on Agoda
Best Splurge Hotel in Iceland: The Retreat at Blue Lagoon
There really is no competition for best splurge hotel in Iceland – The Retreat at Blue Lagoon wins hands down! Located right within the Blue Lagoon area, guests are treated with full access to spa facilities powered by geothermal hot springs. They also run great activities, and the on-site restaurant offers delectable cuisine.View on Booking.com View on HotelsCombined View on Agoda
Iceland 7 Best Neighborhoods to Stay in
Let’s take a look, in more detail, at the five best neighbourhoods in Iceland. Each caters to different interests, so be sure to pick the neighbourhood that’s right for you.
Quick Summary: The Best Place to Stay in Iceland
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- COOLEST thing to do in Reykjavik – experience modern Icelandic culture at Nordic House, an important venue with art exhibitions, concerts and cultural events
- BEST place to visit in Reykjavik – Hallgrímskirkja is the most prominent landmark in the city, a major church with breathtaking architecture and historic monuments
As the capital of Iceland, Reykjavik is the first stop for many visitors to the island. It has a great combination of cultural attractions and gorgeous surrounding nature that perfectly showcase everything the country has to offer! Most of the major attractions are within walking distance of each other, making getting around a breeze.
Beneath the surface, Reykjavik also has some great hidden attractions that require you to dig a little deeper into the local culture! Though Iceland is by no means a nightlife destination, many of the clubs in the capital have been frequented by A-list celebrities and cultural behemoths from across the decades. This is a truly eclectic city, and the best option if you are only in Iceland for a few days.
More awesome things to see and do in Reykjavik
– Tjörnin, the large pond in the centre of the city, is a great place for a relaxing walk around the city
– The National Gallery of Iceland is the largest collection of Icelandic art in the country and also houses some international pieces
– At the end of August, the city lights up for Culture Night – the largest event in the country with cultural exhibits throughout the day and live concerts at night
– There are plenty of excellent tour companies in Reykjavik, including horse tours where you can ride an Icelandic Horse through the surrounding nature
– Laugardalslaug is the largest geothermal pool in the city, with large pools, baths and even waterslides for the kids to enjoy
– Visit Dillon Rock Bar, the most famous nightclub in the entire country that has hosted A list celebrities, Icelandic musicians and a whole host of locals and visitors over the years
– Múlakaffi is a great restaurant for those on a budget – though a little basic in appearance, it offers excellent traditional Icelandic cuisine
Best Hostel Reykjavik: Laekur Hostel
Laekur Hostel oozes Nordic style with a welcoming atmosphere! Located right in the centre of the city, it is perfectly located for getting around Reykjavik and exploring everything on offer. They offer dorms, as well as privates that are provided at excellent rates compared to other Reykjavik hotels. Free WiFi is available throughout.View on HostelWorld
Best Budget Hotel in Reykjavik: Hotel Cabin
This hotel is pretty basic, but great if you are simply looking for a place to sleep whilst staying in Reykjavik! The rooms are well formed with Nordic style interior design. A buffet breakfast is included in the rate, helping to save you a little more money whilst visiting the notoriously expensive country.View on Booking.com View on HotelsCombined View on Agoda
Best Splurge Hotel in Reykjavik: Black Pearl Apartment Hotel
This hotel is a collection of fully serviced luxury apartments right in the heart of Reykjavik! Guests are provided with a large continental breakfast every morning, and private parking is available on-site. Rooms are equipped with blackout curtains, Nespresso machines and heated flooring. WiFi is available in every apartment, and special kids breakfasts can be provided.View on Booking.com View on HotelsCombined View on Agoda
- COOLEST thing to do in Keflavik – take a whale watching tour from Keflavik harbour and get up close with local marine life
- BEST place to visit in Keflavik – head out to the nearby Blue Lagoon, a popular Geothermal spa
Keflavik is the location of Iceland’s only international airport, and as such has great connections with other towns across the island! Within a few minutes of Reykjavik, Keflavik makes a handy base for short stays in the country as well as those looking to be well connected to public transport options.
Aside from its favourable location, Keflavik also has some great attractions of its own! The sleepy town is a great place to discover some local culture from Iceland. The surrounding peninsula also has some excellent attractions including the world famous Blue Lagoon. This is where you can bathe in the geothermal waters of Iceland and enjoy the associated health benefits.
More awesome things to see and do in Keflavik
– Visit Viking World where you can learn about the history of the seafaring colonisers in Iceland and the lasting connections with modern Icelandic society
– If you are visiting in late August, the Festival of Lights is an interesting cultural event where displays are set up throughout the town
– Head to the local tourism office and grab a map for local walking routes where you can admire gorgeous seaside scenery and visit functioning lighthouses
– Next to Hotel Keflavik is Café Iðnó, a huge glass restaurant offering local cuisine as well as some excellent international dishes
– Another great restaurant is Rain, which also functions as a local bar – they serve a great wine selection and have excellent views across the harbour
– You can check out some more natural hot springs at Gunnuhver – these are too hot to touch but make for excellent photos, so pack your camera!
– Learn about Iceland’s deep connection with the international music industry at the Icelandic Museum of Rock ‘n Roll
Best Hostel Keflavik: Start Hostel
This is the closest hostel to Iceland’s International Airport, making it convenient for backpackers arriving late or only staying for a short trip! A buffet breakfast is provided, helping to save you money and get you set up for the day ahead. Start Hostel is well-rated thanks to the excellent levels of service and great facilities available on-site.View on HostelWorld
Best Budget Hotel in Keflavik: Tjarnahotel Keflavik
This three-star hotel is ideally located right in the centre of Keflavik, within walking distance of most of the major attractions in the town! A continental buffet breakfast is provided free to all guests every morning, and private parking is available. They provide airport transfers and discounted tickets to attractions across Iceland.View on Booking.com View on HotelsCombined View on Agoda
Best Splurge Hotel in Keflavik: The Retreat at Blue Lagoon
If you want to splurge on your visit to Iceland, The Retreat at Blue Lagoon is really the best choice! Located right within the iconic Blue Lagoon area, guests are given access to multiple spa facilities. They also offer complimentary breakfast, guided hikes and yoga sessions on-site in the hotel, as well as all the regular facilities you would expect from a five-star hotel.View on Booking.com View on HotelsCombined View on Agoda
- COOLEST thing to do in Höfn – take a jeep tour out to the glaciers of Vatnajökull National Park with a number of tour providers in the area
- BEST place to visit in Höfn – learn about the lives of rural Icelanders at the Gamlabúð Folk Museum
Höfn is the main town in the Hornafjörður area, and the perfect getaway for families visiting Iceland! Though it is a small village, it has plenty of unique attractions to delight visitors looking to experience rural life in Iceland. The strong community vibe is appealing for families and ensures you will feel welcome whilst in the town.
The main tourist attraction in the area is Vatnajökull National Park, which is home to the largest glacier in Europe! There are plenty of excellent tour providers in Höfn that visit the glacier, with the jeep tours being the most popular. In the town itself, we suggest heading to the local restaurants and museums and getting to know the people of the town.
More awesome things to see and do in Höfn
– Pakkhús Maritime Museum is an interesting museum dedicated to the seafaring culture of Iceland – particularly of Icelanders in the South East of the island
– Hafnarbúðin is a popular restaurant with local families offering burgers, subs and other American style dishes – great if you are trying to watch your spending
– If you would rather have a more upmarket experience, dine at Humarhöfnin – they offer excellent Icelandic lobster, though we suggest calling in advance
– Pick up local arts, crafts and souvenirs to keep as a memento of your trip at Handraðinn, located in nearby Vesturbraut
– The entire area is full of excellent hiking trails – we suggest heading to Lónsöraefi where you can enjoy a full day of hiking with impeccable views
– Huldusteinn is a bit of an odd museum, showcasing some rock collections from residents of the area – all within an old swimming pool
– To learn about a little piece of Icelandic literary culture, head to Þórbergssetur – a museum dedicated to local writer Þorbergur Þórðarson
Best Hostel Höfn: Höfn Hostel
This hostel overlooking Höfn harbour has an environmentally friendly ethos – perfect if you want to keep down your carbon footprint! Though they only offer private rooms, there are great communal facilities that give it a real hostel atmosphere. Free parking is available within the hostel grounds, and WiFi can be accessed throughout the property.View on Booking.com View on HotelsCombined View on Agoda
Best Budget Hotel in Höfn: Höfn Guesthouse
This is a great upgrade from the hostel if you would rather have a private bathroom but still want budget-friendly rates! Some rooms come with views across the nearby mountains, giving you a spectacular sight to enjoy when you wake up. There is a common lounge area where you can mingle with other guests and enjoy coffee making facilities.View on Booking.com View on HotelsCombined View on Agoda
Best Splurge Hotel in Höfn: Fosshotel Glacier Lagoon
Based in nearby Hnappavellir, Fosshotel is one of the closest hotels to the glaciers – perfect if those form a major part of your itinerary! There is a dry sauna on-site where guests can unwind after a day of hiking or exploring the local region. They have free private parking for all guests, and high-speed WiFi is available throughout the property.View on Booking.com View on HotelsCombined View on Agoda
- COOLEST thing to do in Hafnarfjörður – take part in the Viking Festival every summer where locals dress up as Vikings and sell themed souvenirs in the markets
- BEST place to visit in Hafnarfjörður – wander around Hafnarfjörður Museum, a small collection of local houses that exhibit the traditional Icelandic way of life
Hafnarfjörður is a small town located just south of Reykjavik. Though often considered a suburb of the capital, Hafnarfjörður has an independent spirit that gives you a more authentic Icelandic experience. Known for its art galleries, the town is also a haven for creatives looking to enjoy the Icelandic art scene and pick up some local crafts.
Though Iceland is by no means a budget-friendly destination, Hafnarfjörður’s location makes it ideal for visitors looking to keep their spending in check. Its proximity to the capital means the restaurants and bars are cheaper than elsewhere in the country, and many of the galleries are free to walk around – though they do sell their art.
More awesome things to see and do in Hafnarfjörður
– Head down to the Viking Village where there are plenty of restaurants serving Icelandic cuisine at great prices
– Visit Hafnarborg, an art gallery run by the townspeople that is free to enter – it has some intriguing exhibits by artists from across the nation
– Visiting over Christmas? Hafnarfjörður has the most popular Christmas market on the island with an excellent atmosphere and great food
– Admire the lava formations at Hellisgerði, as well as wander around the local houses – it is free to enter!
– If you want to buy some art whilst in the area, Gallerí Thors has an excellent selection that changes often, allowing you to pick up some truly unique pieces
– Check out the local tour companies that offer visits to sites that feature in local folklore – particularly from stories featuring elves
Best Hostel Hafnarfjörður: Vibrant Iceland Hostel
Vibrant Iceland Hostel has a very social, yet calm, atmosphere that is perfect if you want to meet with other travellers during your stay! The hostel has been recently renovated to include only the highest quality furniture and fittings. The shared spaces are large, and regular social events are held by hostel staff – especially during peak season.View on HostelWorld
Best Budget Hotel in Hafnarfjörður: Hótel Vellir
Whilst close to Hafnarfjörður, Hótel Vellir has a bit more of a secluded feel – perfect if you just want somewhere to relax! The free private parking makes it ideal for those who are hiring a car but want to avoid the traffic in Reykjavik. A continental buffet breakfast is provided every morning, with high-quality Icelandic coffee.View on Booking.com View on HotelsCombined View on Agoda
Best Splurge Hotel in Hafnarfjörður: Hotel Örk
Hotel Örk is one of the only accommodations in the entire country to offer an outdoor pool! Whilst this is obviously seasonal, this is great during the warm summers and has a water slide for families to enjoy. Guests are given free access to the nearby golf course, and there is a large games room on-site.View on Booking.com View on HotelsCombined View on Agoda
- COOLEST thing to do in Vík – try out some paragliding close to the South Coast beach with True Adventure Paragliding Flights
- BEST place to visit in Vík – the famous black sand beach, Reynisfjara, is located within walking distance of the town
Located right on the south coast of Iceland, Vík is the best neighbourhood for immediate access to Reynisfjara Black Sand Beach! This beach stretches right along the coast and is often regarded as one of the most beautiful places in the world. During the summer it has a very romantic atmosphere – perfect for couples visiting the country.
Though Vík only has around 300 residents, its importance to tourism means it has plenty of facilities available for visitors to use! The small size makes it a very welcoming place to stay, and the surrounding area is filled with natural beauty and epic landscapes. For a true getaway experience, you can’t beat Vík.
More awesome things to see and do in Vík
– Head to Dyrholaey Peninsula, a volcanic landscape formed relatively recently with great hiking trails and magnificent views along the coast
– If you are interested in checking out the nature of the area, Katlatrack Adventure Tours offer great excursions to volcanoes, glaciers and geysers nearby
– For a more sobering experience, visit the Solheimasandur plane crash site where you can still find some of the foliage and learn about the disaster
– Vík í Mýrdal Church is a quaint little building at the edge of the town – climb to the top for panoramas across the area
– There aren’t many restaurants in Vík, but Suður-Vík has a romantic ambience and artistic flair, as well as great dishes prepared with fresh ingredients
– If you want something to drink, Smiðjan Brugghús is a local brewery with a wide selection of beers on tap
Best Hostel Vík: Hostel Skogar
Though there are no hostels in Vík, Hostel Skogar is located a short drive away from the town and has regular bus connections! It is also one of the closest hostels to the Eyjafjallajökull Glacier area, making it perfect for those interested in hiking the infamous national park. There is a great restaurant on-site with a covered veranda.View on HostelWorld
Best Budget Hotel in Vík: Hótel Kría
This modern hotel is located right in the heart of Vík, with easy access to the black sand beach! It perfectly encapsulates Nordic style, with modern architecture and sleek interiors. A continental breakfast is provided and comes with vegetarian, vegan and gluten-free options. Free WiFi is available throughout, as well as free parking.View on Booking.com View on HotelsCombined View on Agoda
Best Splurge Hotel in Vík: UMI Hotel
Also just outside of Vík, UMI Hotel is situated right at the foot of Eyjafjallajökul Volcano! There is a great communal terrace on-site, featuring magnificent views towards the Atlantic Ocean. The 24-hour service desk has access to local tour companies providing horse riding and fishing activities – perfect for nature lovers!View on Booking.com View on HotelsCombined View on Agoda
- COOLEST thing to do in Akureyri – check out a performance at Akureyri Drama Society, the only professional theatre organisation outside of the capital
- BEST place to visit in Akureyri – visit Lystigarðurinn, a large botanic garden in the centre of the town
Often regarded as Iceland’s second ‘city’, Akureyri is the most populous town outside of the Reykjavik area! Located in the far north of the island, it still maintains a somewhat secluded feel whilst keeping a wide range of facilities allowing for a more convenient experience than the smaller villages.
This is a great place to dive deep into the traditional Icelandic way of life, and how it heavily influences the modern culture of towns outside of the capital! The quirky bars and restaurants are packed with friendly locals who are known to treat visitors like friends and help them get to know the town. Though hardly off the beaten path, it is still a far different experience from many of the main tourist areas.
More awesome things to see and do in Akureyri
– Head down to Hafnaerstrati, the main street in the town with plenty of local boutiques and cafes to keep you entertained
– At night, the few bars in the city open on Hafnaerstrati until 1am – try out the unique wheel of fortune game where you could end up with a cheap beer, or nothing
– Despite originating in America, burgers and fries are popular across Iceland – MacGratsky Burger has some excellent variations with a local twist
– Hof is the largest cultural venue in the town featuring a wide range of concerts, as well as regular performances from the symphony orchestra
– The town is built in the centre of an incredibly scenic fjord, so head to the local tourism office to pick up some hiking trail maps
– If you want to splurge on a good meal, you can’t go wrong with Strikið – their chocolate cake is famous across the island!
Best Hostel Akureyri: Akureyri H.I. Hostel
Operated by Hostelling International, Akureyri Hostel is perfect for members of the organisation looking for cheap lodging on the island! It is family run, giving it a warm and welcoming atmosphere and great levels of service. They offer privates, and the dorms are kept quite small for a more relaxed experience.View on HostelWorld
Best Budget Hotel in Akureyri: Hotel Nordurland
Keahotels is the main chain in the area, and Hotel Nordurland is their budget offering! Rooms are well equipped with all the basic facilities you would expect from a highly rated hotel. A continental breakfast is offered every morning, and guests can sample excellent Icelandic coffee whilst staying at the hotel.View on Booking.com View on HotelsCombined View on Agoda
Best Splurge Hotel in Akureyri: Hotel Kea
Also run by Keahotels, Hotel Kea is a great step up if you want a more luxurious experience whilst staying in Akureyri! Located on the main street in town, it is perfect for getting around all of the main attractions. Rooms are large and come with luxury fixtures and fittings, giving you the ultimate in comfort during your stay.View on Booking.com View on HotelsCombined View on Agoda
- COOLEST thing to do in Ísafjörður – take in the fjords in a variety of ways with West Tours – including kayaking, horse riding and even skiing!
- BEST place to visit in Ísafjörður – visit the local swimming pool where you can enjoy a local hot spring at a great price
Ísafjörður is the largest town in the Westfjörds region of Iceland, giving you the best access to this beautiful peninsula in the north of the island! There are plenty of great tour companies in the area offering excursions to the surrounding fjörds and other natural landmarks. West Tours are great if you want a more unique way to experience the area – especially if you are into adventure travel.
The town itself is quite small, but tourism has placed it firmly on the map and resulted in plenty of excellent facilities around the area. Like many of Iceland’s small towns, the restaurants have a very local atmosphere and both staff and patrons are incredibly friendly.
More awesome things to see and do in Ísafjörður
– Visit Sjominjasafn Vestfjarda, a local museum dedicated to historic fisheries – there is also a great seafood restaurant attached
– Take a trip to Vigur Island – easily accessed from Ísafjörður, it is a popular destination for birdwatchers looking for native puffins
– There aren’t any bars in the area, so Vínbúð is your best option for picking up a drink – it is owned by the government
– For a surprisingly cosmopolitan dining experience, head to Thai Koon which offers cheap meals from a variety of Asian cuisines
– Hop on a local ferry and explore the smaller towns of Westfjörd – pick two or three and make a day trip out of it!
Best Hostel Ísafjörður: Sima Hostel
Located in nearby Flateyri, Sima Hostel is the only backpacker accommodation in the Westfjords region! Rooms are large and spacious, and limited guest sizes ensure a peaceful experience whilst staying on the property. There are two kitchens on-site which come well equipped – perfect for self-catering guests.View on HostelWorld
Best Budget Hotel in Ísafjörður: Fisherman Hotel Westfjords
Fisherman Hotel is the best budget accommodation available in Westfjords, located in the nearby town of Suðureyri! Those on an ultra-budget can opt for rooms with shared bathroom facilities, and private ensuites are also available for an additional fee. A buffet breakfast is provided every morning.View on Booking.com View on HotelsCombined View on Agoda
Best Splurge Hotel in Ísafjörður: Hotel Ísafjörður
The only hotel located within Ísafjörður, this accommodation is the best rated in the entire Westfjörds area! The modern rooms come equipped with coffee making facilities, high-speed WiFi and large bathrooms. A continental breakfast buffet is served every morning and comes with gluten-free options.View on Booking.com View on HotelsCombined View on Agoda
Final Thoughts on Where to Stay in Iceland
Iceland is an incredible country with plenty to offer visitors! The most obvious attraction is its outstanding natural beauty shaped by volcanoes, glaciers and hot springs. Scratching under the surface, there are also plenty of unique cultural attractions and events waiting to be discovered by eager visitors. On top of this, it’s the safest country in the world.
For the best area, we are going to go with Hafnarfjörður! Whilst Reykjavik is the obvious choice, Hafnarfjörður is well located close to the capital and a perfect base for getting around the island. If you want to avoid the notoriously high costs of visiting Iceland, Hafnarfjörður is your best bet.
Nevertheless, each town has something unique to offer – and the best itinerary will include a few of them in one trip. We hope this guide has helped you narrow down your options for your upcoming trip!
Have we missed anything? Let us know in the comments!
Don’t forget to sort your travel insurance! We’ve put together a roundup of the best travel insurance for backpackers – check it out here, or if you’re low on time, get a quote from World Nomads now, our favourite travel insurance provider.
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Need More Inspiration?
- Backpacking Europe Travel Guide
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