Gareth Southgate put Aaron Ramsdale in goal for England in their final warm-up game before the Euros in Germany.
And Ramsdale was beaten after just 12 minutes as Iceland took the lead.
A typically turgid England performance ensued, with Iceland celebrating a rare win at Wembley.
Meanwhile, Vitalii Mykolenko tasted action for the first time since the Merseyside derby in April when he turned out for Ukraine for 45 minutes in their 3-1 friendly defeat to Poland.