The town at the head of Seyðisfjörður Fjord is named after the fjord. It is an attractive little place with mountains crouching close on every side and the Fjarðará river flowing through it. The town has a picturesque appearance and has preserved much of its old architecture.This scenically situated township, owes its existence to before the 20th century herring fishing, when it had a short lived period of flourishing growth. When herring disappeared from these waters, there was a lengthy period of little activity. Since the 1960´s there has been very considerable renewed growth in fishing and related processing and services. The submarine telegraph cable that linked Iceland with the outside world came ashore here in 1906 and connected the rest of the country by overland lines.
Seyðisfjörður has a fine harbour and it is the nearest port to the Faroe Islands and Europe. With its sheltered harbour and anchorage, the town was a gathering point for ship convoys bringing supplies from the United States to Britain and the Soviet Union during World War 2. The car and passenger ferry Norröna that connects with the Faroe Islands and Denmark, docks weekly at Seyðisfjörður all year round.
In December 2020, following a period of intense rainfall, several landslides hit Seyðisfjörður town and caused serious damage in the town. 14 buildings in the town were completely destroyed and a large part of the town had to be evacuated due to risk of more landslides. Fortunately no lives were lost and there were no injuries.