At the start of the war, Britain imposed strict export controls on Icelandic goods, preventing profitable shipments to Germany, as part of its naval blockade.

The initial force of 746 British Royal Marines commanded by Colonel Robert Sturges disembarked at the capital Reykjavík.

Meeting no resistance, the troops moved quickly to disable communication networks, secure strategic locations, and arrest German citizens.

Requisitioning local transport, the troops moved to Hvalfjörður, Kaldaðarnes, Sandskeið, and Akranes to secure landing areas against the possibility of a German counterattack.

On the evening of 10 May, the government of Iceland issued a protest, charging that its neutrality had been "flagrantly violated" and "its independence infringed", noting that compensation would be expected for all damage done.

The British promised compensation, favourable business agreements, non-interference in Icelandic affairs, and the withdrawal of all forces at the end of the war.

Resigning themselves to the situation, the Icelandic authorities provided the invasion force with de facto cooperation, though formally maintaining a policy of neutrality.

Stretched thin, Brigadier Lammie requested additional forces of the HQ of the 49th (West Riding) Infantry Division, a Territorial Army (TA) formation under Major General Henry Curtis, and the 147th Brigade arrived on 26 May, followed by numerous convoys of troops and supplies.

Additional reinforcements over the course of the summer included field artillery, Anti-Aircraft guns, Bren carriers, engineer and construction units, and support forces.

Hvalfjörður became a naval base for merchant escort and antisubmarine forces, with extensive facilities including a mine depot, pier and jetties, accommodation, a fresh water system, ammunition storage, a fleet bakery, bulk naval storage warehouse, recreation facilities, a direction-finding station and a fuel farm.

The cruiser HMS Devonshire and battleship King George V visited Akureyri harbour in May 1941, just prior to their sea battle with the German warships Bismarck and Prinz Eugen in the Straits of Denmark between Greenland and Iceland.

The hospital ship Leinster based at Akureyri harbour sailed on 24 May to care for the wounded after the destruction of HMS Hood in the battle.

On 6 August, the United States Navy established an air base at Reykjavík with the arrival of Patrol Squadron VP-73 PBY Catalinas and VP-74 PBM Mariners.

Britain invaded to forestall a German occupation, to provide a base for naval and air patrols, and to protect merchant shipping lanes from North America to Europe.

The occupation required the building of a network of roads, hospitals, harbours, airfields and bridges across the country, and this did have enormous positive economic impact.

On the other hand, Icelanders severely censured the sexual relationships between troops and local women, which were causing considerable controversy and political turmoil.

[citation needed] During the occupation, on 17 June 1944, Iceland declared itself a republic, and while continuing to cooperate with the British, Canadian, and American military they remained officially neutral throughout the war.

In a postwar interview with an American, Walter Warlimont claimed, "Hitler definitely was interested in occupying Iceland prior to [British] occupation.