It is located in the north of Iceland in the Mývatn region and is situated on the Iceland hotspot atop the Mid-Atlantic Ridge, which forms the divergent boundary between the North American Plate and the Eurasian Plate.

The north–south axis of the Mid-Atlantic Ridge splits Iceland in two, roughly north to south.

During these events a large magma chamber was identified at depth by analysing the seismic activity.

[4] Since 1977 the Krafla area has been the source of the geothermal energy used by a 60 MWe power station.

A survey undertaken in 2006 indicated very high temperatures at depths of between 3 and 5 kilometres (1.9 and 3.1 miles), and these favourable conditions led to the development of the first well from the Iceland Deep Drilling Project, IDDP-1, that found molten rhyolite magma 2.1 km (1.3 mi) deep beneath the surface in 2009.