The first comprehensive census in Iceland was taken in 1703, at which time 50,358 people were reported. The 18th century was marked by great economic hardship, and by 1801 the population had declined to 47,240. There began a slow increase in the 19th century, and by 1901 the population had risen to 78,470. Accelerated economic growth during the early decades of the 20th century was paralleled by a rapid growth in population, which in 1950 reached 143,973. During World War II and the early postwar period there was rapid improvement in the standard of living and a new acceleration in the rate of population growth. The annual growth rate reached its peak during the 1950s; it has been declining since 1960, primarily because of a sharply reduced birth rate and continued emigration. For a brief period from the late 1980s to the mid-1990s the birth rate rose again before resuming its downward trend. In the late 1980s the population reached a quarter of a million.

The population of Iceland is extremely homogeneous. The inhabitants are descendants of settlers who began arriving in AD 874 and continued in heavy influx for about 60 years thereafter. Historians differ on the exact origin and ethnic composition of the settlers but agree that between 60 and 80 percent of them were of Nordic stock from Norway. The rest, from Scotland and Ireland, were largely of Celtic stock. The dominant language in the period of settlement was Old Norse, the language spoken in Norway at the time. Through the centuries it has evolved into modern Icelandic, which is used throughout the country. There are no racial or ethnic distinctions. The early Nordic and Celtic stocks have long since merged, and the small number of subsequent immigrants have had no major effect on the population structure. The Lutheran faith has been the dominant religion since the mid-16th century. About nine-tenths of the population belongs to the state-supported Evangelical Lutheran church. There is freedom of religion.