The Icelandic space sector, while nascent, holds significant potential within the global space ecosystem. This research comprehensively analyses Iceland's emerging role in space activities, emphasising its unique geographic, environmental, and policy-based advantages. By examining existing infrastructure, policy frameworks, and international collaborations, this study identifies the challenges and opportunities for Iceland to carve out a niche in the global space industry. Key findings highlight Iceland's strategic location for polar satellite tracking, its pristine environment for astrobiological research, and its geothermal energy resources as critical enablers for sustainable space-related projects. Furthermore, the paper explores the regulatory and institutional gaps in Iceland's space policy and offers recommendations for fostering innovation and attracting international partnerships. Through a framework analysis, this study evaluates Iceland's alignment with global trends in space exploration and its potential to contribute to fields such as Earth observation, climate monitoring, and space technology testing. This work underscores the need for strategic investments and policy adaptations to ensure Iceland's active participation in the rapidly evolving space economy.