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Melrakkaey ("Fox Island") is a small island found at the mouth of Grundarfjörður. Melrakkaey was protected in 1972 and today, only those with permission from the Nature Conservation Agency may visit. 

As with the majority of islands along the shallow, 50 km (31 mi) bay Breiðafjörður, Melrakkaey was, historically, a source of sustenance for the local population. Not only was the island used for fishing—ruins of these fishing outposts still exist—but the tall, columnar basalt cliffs on the island's north, east and south sides ensured that a variety of nesting birds called Melrakkaey home. This meant a reliable source of meat and eggs, making the island a makeshift pantry for the community. 

Amongst the seabirds that still nest on Melrakkaey today are cormorants, glaucous gulls, shags, eiders and Iceland's favourite resident, the Puffin. Regulations were put in place on visitor numbers in order to protect the wild bird species. 

Melrakkaey was once known as "The Reverend's Island" to Danish Sailors due to it belonging to a 14th-century parsonage nearby. The island was pledged to the church after an elderly local woman lost her two sons at sea and could not find their bodies. The parsonage used the island for haymaking, and there was even a house built on the island to facilitate such a practise.