Located in southwestern Iceland, on the southern shore of Faxaflói Bay, believed to be the location of the first permanent settlement in Iceland. Founded in 1786 as an official trading town and grew steadily over the next decades, as it transformed into a regional and later national centre of commerce, population and governmental activities.

A highly modernized capital of one of the most developed countries in the world, its inhabitants enjoy a first-class welfare system and city infrastructure. Its location, only 2 degrees south of the Arctic Circle, receives a maximum of only four hours of daylight on the shortest day of winter; during the summer the nights are almost as bright as the days.

The first permanent settlement in Iceland by Nordic people is believed to have been established in Reykjavík by the Norseman Ingólfur Arnarson around AD 870, said to have decided the location of his settlement using a traditional Viking method; by dumping his high seat pillars, Öndvegissúlur, in the ocean when he saw the coastline and then settled where the pillars came to shore.

Steam from hot springs in the region is supposed to have inspired Reykjavík's name, as Reykjavík loosely translates to "Bay of Smokes". Reykjavík is not mentioned in any medieval sources except as a regular farm land but the 18th century saw the beginning of urban concentration there. The Danish rulers of Iceland backed the idea of domestic industry in Iceland that would help to stimulate much-needed progress on the island. In the 1750s several houses were constructed to house the wool industry that was to be Reykjavík's most important employer for a few decades and the original reason for its existence. Other crafts were also practiced such as fisheries, sulphur mining, agriculture, and shipbuilding.

Nationalist sentiment gained influence in the 19th century and ideas of Icelandic independence became widespread. Reykjavík, as Iceland's only city, was the melting pot of such ideas. Advocates of an independent Iceland realized that a strong Reykjavík was fundamental to that objective. In 1845, Alþingi, or the general assembly that Icelanders formed in 930, was re-established in Reykjavík; it had been suspended a few decades earlier when it was located at Thingvellir. At the time it only functioned as an advisory assembly with the function of advising the King about Icelandic affairs. The location of Alþingi in Reykjavík effectively established the city as the capital of Iceland.

In the 1920s and 1930s most of the growing Icelandic fishing trawler fleet sailed from Reykjavík and salt-cod production was the main industry but the Great Depression hit Reykjavík hard with unemployment and labour union struggles.

In the morning of May 10, 1940, following the German occupation of Denmark on April 9, four warships approached Reykjavík and anchored in the harbour. Citizens were relieved to find that they were British rather than German. In a few hours, the allied occupation of Reykjavík was complete. There was no armed resistance and taxi and truck drivers even assisted the invasion force which had no motor vehicles initially. The Icelandic government had received many requests from the British government to consent to the occupation, but they always declined on the basis of the Neutrality Policy. For the remaining years of World War II, British and later American soldiers built bases in Reykjavík; the number of foreign soldiers in Reykjavík became about the same as the local population of the city.

The economic effects of the occupation were quite positive for Reykjavík: the unemployment of the depression years vanished and a lot of construction work was done. The British built Reykjavík Airport, which is still in service today, mostly serving domestic flights; the Americans built Keflavík Airport that later became Iceland's primary international airport, situated 50 km from Reykjavík. In 1944 the Republic of Iceland was founded and a president elected in popular elections replaced the King, the office of the president was placed in Reykjavík.

In the post-war years, the growth of Reykjavík accelerated. A mass exodus from the rural countryside began, largely due to improved technology in agriculture that reduced the need for manpower, and because of the population boom resulting from better living conditions in the country. Young people in the prime of their lives were the largest group to move to the capital to live the "Reykjavík Dream", and the city became a city of children. A once primitive village was rapidly transformed into a modern city. Private cars became common and modern apartment complexes rose in the expanding suburbs. Much of Reykjavík lost its village feel.

Reykjavík has become a significant player in the global community. The 1986 Reykjavík Summit between Ronald Reagan and Mikhail Gorbachev underlined Reykjavík's new-found international status. Deregulation in the financial sector and the computer revolution of the 1990s have transformed Reykjavík yet again. The financial sector and information technology are now significant employers in the city. The city has fostered some world famous talents such as Björk and bands Múm and Sigur Rós.

Abundant water and volcanic activity in Iceland have provided Reykjavík with a unique opportunity. Most houses in Reykjavík use the geothermal heating system. It is the largest system of this kind in the world.

Reykjavík is often dubbed "the nightlife capital of the north". It is famous for its nightlife during the weekends. Icelanders tend to go out late so bars that look rather quiet can fill up suddenly—usually after midnight on a weekend. Alcohol is relatively expensive at bars. People tend to drink at home before going out. Beer was banned in Iceland until 1 March 1989, but has since become popular among many Icelanders as their alcoholic drink of choice. There are over 100 different bars and clubs in Reykjavík; most of them are located on Laugavegur and its side streets. It is very common for an establishment that is a café before dinner to turn into a bar in the evening. Closing time is usually around 6 am at weekends and 1 am during the week.

The arrival of the new year is a particular cause for celebration to the people of Reykjavík. Icelandic law states that anyone may purchase and use fireworks during a certain period around New Year's Eve. People spend enormous sums of money on fireworks, most of which are fired as midnight approaches on December 31. As a result, every New Year's Eve the city is lit up with fireworks displays that could last for hours.

Main sights

Alþingishúsið — the Icelandic parliament, located by Austurvöllur, a green spot in the middle of downtown Reykjavík close to the pond, it is a big stone building with a new extention (c.a. 2005).
Bæjarins Beztu Pylsur — a small hotdog stand in central Reykjavík
Blue Lagoon — geothermal spa located near Reykjavík
Hallgrímskirkja — the largest church in Iceland, it towers over the city on top of a hill. In front is a statue of Leif Ericsson, the Viking explorer who sailed to North America in the 10th century. The United States gave this statue to Iceland in 1930, in honor of the 1,000th anniversary of the Althingi, the Iceland parliament.
Heiðmörk — the largest forest and nature reserve in the area
Höfði — the house in which Gorbachev and Reagan met in 1986 for the Iceland Summit
Laugavegur — main shopping street
Nauthólsvík — a geothermally heated beach
Perlan (The Pearl) — a glass dome resting on five water tanks, has fantastic views of the entire city and has a rotating restaurant on top of the water towers. You don't need to dine there to access the viewing platform. It's open to the public.
Rauðhólar — a cluster of red volcanic craters
Ráðhús Reykjavíkur — city hall

The Old Town is easy to walk around. The houses in Reykjavík have very distinct features, most notably their brightly colored corrugated metal siding. The National Cathedral, located next to Althingi and is a very small church. Tjörnin Lake (also known as Reykjavík Pond) is where you can find Reykjavík City Hall.

Hiking in Reykjavik vicinity Hiking is the national hobby in Iceland. Horse riding is a very popular activity amongst locals as well as visitors. The Icelandic Horse is very well suited for novice/first-time riders. Whale watching/sea Angling sightings of whales, dolphins and puffins (depends on season) are frequent around Reykjavík.

Outdoor Geo-Thermal Swimming Pools are an important part of Icelandic culture and a visit to them is a great way to relax with Icelanders. In fact it is not stretching the truth too far to suggest that because drinking is so expensive the hot-pots at these pools serve the same role that pubs and bars do in the rest of Europe.