It is located at the head of Reykjarfjörður on the Strandir coast in the Westfjords region (Vestfirðir), in the municipality of Árneshreppur.

Guðjón Jónsson moved to Djúpavík in 1917 with his wife Krístín Guðmundsdóttir and three children to serve as the factory's supervisor.

There were shortages of fuel oil and salt, and the import price of coal and other supplies rose sharply.

In the following year, the Armistice of 11 November 1918 led to reduced demand for exports from Iceland.

[6] In 1934, a decline in demand for salted fish led to new investments in factories that could produce valuable herring oil.

Because financing was difficult to obtain in Iceland, Djúpavík Ltd. sent representatives to Sweden to negotiate a loan to build a new herring factory.

Electricity was generated by four German-built diesel engines salvaged from submarines and an Icelandic guard ship.

[12] Initial worries that the catches would not meet requirements proved unfounded and during its early years the enterprise boomed, bringing improved financial status and living standards to the whole region.

[16] In 1984 Ásbjörn Þorgilsson, the grandson of a former Djúpavík resident, and his wife Eva Sigurbjörnsdóttir bought the herring factory, intending to repair it and start a fish breeding program.

As of 2016, Hotel Djúpavík was "the only eco-friendly tourism service in Strandir...."[17] During this time, they also made repairs to prevent further deterioration of the factory and other buildings.

They removed the heads and bones, packed the herring in salt, and placed them in large wooden barrels.

[32] The two younger children attended school in Trékyllisvík, about 20 km (12 mi) by road to the north.

When snow made the road impassible, Ásbjörn transported his children to and from Gjögur in a small boat.

[33] After a particularly harrowing incident when his daughter nearly fell from the jetty at Gjögur, Ásbjörn bought a snowmobile for winter transportation to and from school.

After considering the economics of fish farming and the increase in tourism, Ásbjörn and Eva decided to preserve the factory as a museum.

[38] The core of the factory contains the original machinery as it was found in 1984 and educational displays which preserve the history of Djúpavík.

The large storage areas of the factory are used for art exhibitions, concerts, and special events such as weddings.

[39] In the hotel, necessary structural repairs were made, plumbing was added, and the dining room, kitchen, and bedrooms were updated to make them suitable for hosting overnight guests.