Photo from Wikimedia, Creative Commons, by ezioman
Hveradalir, ‘the Valley of the Hot Springs’, is exactly what its name suggests. It can be found in the country's interior, on the Kjölur Highland Road.
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One of the largest geothermal areas in the country, there are hot springs you can bathe in, and many more that can be admired from a safe distance. The site is surrounded by the rhyolite mountains of the Kerlingarfjöll range, making for some spectacular and colourful surroundings and excellent hiking opportunities.
The Kjölur Highland Road can only be accessed in summer, and though two-wheel-drives are allowed to drive it, no car rental will let you take one of their vehicles there, so it is best to rent a four-wheel-drive or take a tour.