iceland - 3 day recommendations
 

We are spending 3 days in iceland (2 nights) in late August. -Any suggestions for key outdoor places to visit (Blue Lagoon, Golden Circle are currently on our list) - we'll have a 4 year old with us. We're planning on renting a 4WD to get out-and-about most efficiently. Also, should we plant ourselves in a hotel REYKJAVIK, using the city as our hub - or would you recommend staying elsewhere? Thank you.

Bring in anything you need,including booze and snacks, etc. - Iceland is OUTRAGEOUSLY expensive - especially for alcohol.

For three days I would stay in the city. You can stock up on alcohol at the duty free store at the airport when you arrive. There are several swimming pools that are heated in the city and they are very cheap. Good way to spend the day.

Yes, I would use Reykjavik as a base for day trips. The Golden Circle is a good day-long trip (I'm assuming that you are driving this yourself). Another day could be spent driving along the south coast, perhaps as far a Vic, stopping at the waterfalls along the way. You could do the Blue Lagoon, along with a visit out along the Reykjanes Peninsula.

If you have a 4WD, it would be easy to drive up the gravel road to Mýrdalsjökull, the glacier located on the south coast, just west of Vic. Your 4-yr-old would get a real kick out of a snowmobile ride out onto the glacier - I think that they will let her go as a passenger.

The other alternative is an interior trip into the Highlands, NE of Rekjavik. You will need to check to see if your car rental agreement allows this.

I don't know where you are renting the car or when your flight out will be, but many visitors go the Reykjanes Peninsula and/or the Blue Lagoon, then head straight from there to their flight out. This could save on some driving.

3 years ago, we had a 4-day family reunion in Iceland, where we pretty much did all of the above:
http://mysite.verizon.net/res1dm2h/index.html

We just returned from Iceland and spent one night in Reykavik. We stayed at the 101 Hotel (which we thought was just great. Of course we had been camping most of the time!) And we ate at the Seafood Cellar, which was outstanding! It's located in the same building as the tourist information office, but downstairs in the cellar. I can't say enough great things about the food, atmosphere, etc. It is expensive, but no more so than other higher end restaurants.
Have fun!

Reykjavik is a good base as noted and there are also hotels outside of the city where you might save a bit. The Nordica and Loftleidir are both about 2 KM (1.25 miles) from the center of town. The Nordica is running a special that should bring the cost to about $150/night for the three of you including breakfast (10,000 - 13,000 kronur, standard room).
For the Blue Lagoon and Golden Circle tour you will not need 4WD. In my 3 trips to Iceland I never rented a 4WD and never needed one.
Don't forget Geyser - my kids loved it. Food prices are lower in small places away from the cities.

Thank you very much for your thoughtful replies. We've booked a room, at a great rate, at the Nordica thanks to your help (and we're saving $ by avoiding the 4WD cost). Thanks much!

Have a great trip and please let us know how it went.