The rule for a US licence
Icelandic practice accepts licenses issued in the United States, Canada, and the EEA for visitor driving, and a US license in English is normally sufficient.
Some IDP vendors list Iceland as requiring a permit. Those sources sell IDPs, so treat the claim with appropriate skepticism - but if you want certainty, confirm with your rental company.
The real risk in Iceland is not paperwork. F-roads require a 4x4, are closed seasonally, and are excluded from most standard rental insurance.
Live in Iceland, or hold an EU/EEA licence?
A licence issued in Iceland is what you drive on at home - an IDP is a translation of a foreign licence, so it does not apply to you here. An EU or EEA licence from another member state is also valid in Iceland on its own, under EU Directive 2006/126/EC. In neither case do you need an IDP.
At the rental counter
Icelandic agencies accept a US license. Pay close attention to gravel, sand, and ash damage waivers, which are where Iceland rentals actually cost people money.
What the permit covers
An International Driving Permit is a translation of your licence into a standard multilingual booklet, issued under the 1949 and 1968 road traffic conventions. It is not a licence, and it is never valid on its own: you carry it with your own licence, and police expect to see both.
It is issued against the vehicle classes already on your home licence, and it never adds one. If your licence does not cover motorcycles, an IDP does not let you ride a scooter in Iceland; if it does not cover a heavier vehicle, the permit will not cover a camper or a minibus either. The permit restates what you already hold, in a form the local authorities can read.
Driving in more than one country?
Check every destination on your trip at once - Iceland is already filled in.
Check your tripOther destinations
Informational only, not legal advice. Requirements change and vary by length of stay, rental company, and vehicle class. Always confirm with the destination's embassy or your automobile association before you drive.