While the country had satellite television contact from other nations (the United States and Canada) since 1981, Iceland was not able to connect to other European nations by satellite before the end of 1985, meaning that 1986 was the first year Iceland could send a delegation to the Eurovision Song Contest.

[1] On 26 October 1985, the Icelandic national broadcaster, Ríkisútvarpið (RÚV), confirmed its intentions to participate in the contest for the first time in the 1986 edition.

Söngvakeppni Sjónvarpsins 1986 was the national final format developed by RÚV in order to select its entry for the Eurovision Song Contest 1986.

[8] On 20 March 1986, RÚV announced that eventual Söngvakeppnin winner Pálmi Gunnarsson will perform "Gleðibankinn" at the Eurovision Song Contest as part of newly created 3-member band ICY, alongside Helga Möller and fellow Söngvakeppnin 1986 participant Eiríkur Hauksson.

The members of the Icelandic jury included Berglind Orradóttir, Davíð Scheving Thorsteinsson, Elsa Björnsdóttir, Guðjón Vigfússon, Guðlaug Þorsteinsdóttir, Karl Þorsteins, Margrét Stefánsdóttir, Ríkharður Ríkharðsson, Salóme Þorkelsdóttir, Sigurdór Sigurdórsson, and Svanhildur Kristjónsdóttir.