The first permanent British Government envoy in modern times, Mr Charles Smith, arrived on 8 May 1940 accompanying the British troops who occupied Iceland. He died at his post in July 1942. Since then there has been a continuous line of twenty further British Ambassadors resident in Iceland.

The first British Embassy was located in Höfði (were later the summit between Reagan and Gorbatjev was held in 1986). In the 1950s the Embassy moved to Laufásvegur when the British Government bought Laufásvegur 33 as residence for the Ambassador and rented offices for the Chancery further down the street.

The British Government bought the site where Laufásvegur 31 is today in 1968. The old farmhouse that occupied the site was donated by Britain to the Reykjavik Museum in the 1970s shen it was transferred to the Museum's heritage site at Árbæjarsafn and restored. It is now the house of the Museum custodian.

When the British Government decided to redevelop Laufásvegur 31 in the early 1990s, the site was felt to be too big for our needs and we sought a partner to share it. Coincidentally the German Government was looking for new premises at the same time and happy matching of requirements led to the construction of a suite of offices, with some common facilities, for the two missions. Icelandic contractor Istak carried out the construcion work under an arrangement with the British Government that included the transfer of ownership of the land to the company. It was the first time a building was constructed to house two embassies. It was probably the first public-private arrangement of its type in the world. Certainly for Britain.

Celebrations to open the building were held on 2 June 1996 and attended by the British Foreign Minister at the time, Malcolm Rifkin, and the then Minister of State at the German Foreign Minstiry, Werner Hoyer, and the Icelandic Foreign Minister Halldor Ásgrímsson. The commemorative plaque in the building records that it is "the first purpose built co-located British-German chancery building in Europe".

Two works of art are visible to passers by. A fine stained glass window by Leifur Breidfjord that forms the window of the joint conference room; and a tondo in English oak on the west wall of the British Embassy that was commissioned from Hannes Lárusson in 2002 to mark the Golden Jubilee of Her Majesty the Queen.

The embassy now houses nine member of staff: two members of HM Diplomatic Service posted from London and seven permanent Icelandic staff