Its capital is Reykjavik (7)
I believe the answer is:
'its capital is reykjavik' is the definition.
(I've seen this in another clue)
This is the entire clue.
(Other definitions for iceland that I've seen before include "North Atlantic island republic" , "The capital city is Reykjavik" , "Althing its parliament" , "Volcanic country" , "Northern country" .)