Iceland is one of the few places on Earth where a divergent plate boundary can be observed on land. Direct observations of crustal deformation for the whole country are available for the first time from nationwide Global Positioning System (GPS) campaigns in 1993 and 2004. The plate spreading across the island is imaged by the horizontal velocity field and high uplift rates (≥10 mm yr−1) are observed over a large part of central and southeastern Iceland. Several earthquakes, volcanic intrusions and eruptions occurred during the time spanned by the measurements, causing local disturbances of the deformation field. After correcting for the largest earthquakes during the observation period, we calculate the strain rate field and find that the main feature of the field is the extension across the rift zones, subparallel to the direction of plate motion. Kinematic models of the horizontal plate spreading signal indicate a slightly elevated rate of spreading in the Northern Volcanic Zone (NVZ) (23 ± 2 mm yr−1), while the rates at the other plate boundary segments agree fairly well with the predicted rate of plate spreading (∼20 mm yr−1) across Iceland. The horizontal ISNET velocities across north Iceland therefore indicate that the excessive spreading rate (>30 mm yr−1) observed by GPS in 1987–1992 following the 1975–1984 Krafla rifting episode was significantly slower during 1993–2004. We model the vertical velocities using glacial isostatic adjustment (GIA) due to the recent thinning of the largest glaciers in Iceland. A layered earth model with a 10‐km thick elastic layer, underlain by a 30‐km thick viscoelastic layer with viscosity 1 × 1020 Pa s, over a half‐space with viscosity ∼1 × 1019 Pa s can explain the broad area of uplift in central and southeastern Iceland. A wide area of significant residual uplift (up to 8 mm yr−1) is evident in north Iceland after we subtract the rebound signal from the observed rates, whereas the Reykjanes Peninsula and the Western Volcanic Zone (WVZ) appear to be subsiding at a rate of 4–8 mm yr−1. We observe a coherent pattern of small but significant residual horizontal motion (up to 3 mm yr−1) away from Vatnajökull and the smaller glaciers that is most likely caused by glacial rebound. Our study demonstrates that the velocity field over a large part of Iceland is affected by deglaciation and that this effect needs to be considered when interpreting deformation data to monitor subglacial volcanoes in Iceland.