A magnetotelluric survey consisting of 18 separate soundings was performed in 1982 along a 125-km profile crossing the eastern neovolcanic zone in south Iceland. Although the three-dimensional ocean effect may be significant at the longest periods which previous workers have analyzed to study features in the upper mantle beneath Iceland, our studies suggest that this effect is minimal for periods less than 1000 s at distances greater than 50 km from the coast. Therefore we are confident that two-dimensional interpretations are valid at periods suitable for interpreting crustal resistivities. Such a two-dimensional interpretation presented here indicates the presence of a layer (~5 km thick) of low resistivity (5 ohm m) at the crust-mantle interface (10-20 km depth). The depth to this layer increases from the center of the neovolcanic zone. This feature has been seen elsewhere in Iceland by other workers. However, the present study suggests that east of the neovolcanic zone the low-resistivity layer is not present, which we argue may be associated with a recent eastward shift of the axial rift zone to a new location within older crust. A striking feature of our two-dimensional crustal interpretation is that pockets of low-resistivity material appear to be present at approximately 8 km depth at the base of the crust beneath the two volcanic centers that we have studied, Torfajokull and Hekla. These may be manifestations of local magma chambers.