Iōjima is of volcanic origin, and is the northern edge of the Kikai Caldera, a stratovolcano rising from the ocean floor to 703.7 metres (2,309 ft) above sea level at its highest peak (Mount Iōdake).

It is constantly erupting, emitting massive amounts of sulfur dioxide which causes damage to agricultural products.

From 1946-1952, the southern seven islands in the Toshima group belonging to the Tokara archipelago came under the administration of the United States as part of the Provisional Government of Northern Ryukyu Islands; however, since Iōjima is located north of 30 degrees North, it remained Japanese territory during this time, and came under the administration of the village of Mishima in Kagoshima Prefecture.

In October 1973, the Yamaha Corporation established a resort complex on the island, but the venture went bankrupt in April 1983.

The present economic basis of the island is now mainly fishing, agriculture (beef cattle, bamboo shoots, camellia oil products) and seasonal tourism.