Iceland was settled in the 9th century by Nordic, Scandinavian and British people. It is said that the first permanent settler was Ingólfur Arnarson, a Norwegian Viking who made his home where Reykjavík now stands. Iceland was the country that had the world's first republican government. The parliament was established in Þingvellir in 930 and met continuously until 1291 when Iceland became part of the Kingdom of Norway by treaty, and later the Danish Crown.

There were several independence movements during the 18th century and finally in 1918 Denmark recognised Iceland as a sovereign state under the Danish monarchy, with the signing of The Act of Union. One of the most famous figures of this period is Jón Sigurðsson. His birthday, June 17, was chosen as Iceland's National Holiday to recognize his efforts towards Iceland´s independence. His portrait can be seen on ISK 500 banknotes.

During World War II Iceland was occupied, first by the British army and then by the United States. At the same time the German Nazis occupied Denmark. Then, in 1944 Iceland, though still occupied by the US, declared the country an independent state, and Sveinn Björnsson became the first President of the Republic of Iceland while Denmark was still occupied by the Nazis troops.

During the 1990´s, Iceland experienced fast economic growth, particularly the banking sector, and became one of the richest countries in the world until the economic collapse in 2008, which hit Iceland hard. Since then, Iceland has recovered remarkably. It is considered one of the most developed countries in the world.