Exchanging currency

Get $50 for writing a tip!

Credit cards (and Mastercard Debit) are widely accepted in Iceland, including smaller towns and villages. In many cases, it is preferred over cash.
Gas stations often require chip and pin
If possible, sign up for a credit card that charges no foreign transaction fee prior to leaving on your trip
If you feel better with cash, it is best to withdraw ISK from a local ATM in Iceland using your debit card. Again, cash is probably not necessary.
If no local ATM can be found (avoid the ones in KEF airport as the rates are higher), you can visit any bank in Reykjavik and exchange cash for ISK

Let me add a related brief