Many tourists opt to rent cars and drive themselves around Reykjavik but this is actually not recommended by travelers who frequently visit the area.  The reason for this is a primarily due to the fact that renting a car in the area is relatively expensive in comparison with car rental costs in other parts of the world.  However, many people don’t mind the cost and driving in the city is relatively easy, so renting a car might be an option to consider.  Keep in mind that aside from the cost of renting a car at nearly $100 USD/day, gas prices are about $5-6 a gallon (116 kronur a liter).  If you want to drive to any destinations that are not off the main Ring Road, you will need a 4 wheel drive car, as many of the routes are unpaved, and ice and snow are frequently an issue.  If you do rent a car, definitely consider renting a GPS unit with it (offered at all the major rental car agencies); currently about 1000 Kronur extra a day, it makes driving a lot easier, unless you are particularly fluent in Icelandic and can easily deferentiate between street names like Bergstradastraeti, Braedraborgarstigur, and Bergporugata.    

Car rental is generally done at the airport, with Avis ( www.avis.com), Budget ( www.budget.is), and Hertz being popular car rental choices, though all the major companies also have offices downtown or at the central bus terminal (where the Flybus airport shuttle drops you off).  There is generally an extra fee associated with renting at the airport of 2500 kronur.  Car insurance should definitely be purchased, even though driving in the area is easy and car accidents are rare. It doesn’t hurt to be careful.

Taxis are an option for those visitors who do not wish to rent a car.  Taxis are also expensive, but tourists frequently find them convenient for short trips and sometimes even use them for day tours around the area.  Taxis can be hailed on the street or visitors can ask local hotel or restaurant staff to call taxis to come pick them up.  Visitors should note that taxi fares are standardized throughout Reykjavik and fares should be posted in every cab.  Tipping is not required although taxi drivers always appreciate it, especially those drivers hired to give city tours.