The magmatic activity (0–16 Ma) in Iceland is linked to a deep mantle plume that has been active for the past 62 My. Icelandic and northeast Atlantic basalts contain variable proportions of two enriched components, interpreted as recycled oceanic crust supplied by the plume, and subcontinental lithospheric mantle derived from the nearby continental margins. A restricted area in southeast Iceland — and especially the Öræfajökull volcano — is characterized by a unique enriched-mantle component (EM2-like) with elevated ⁸⁷Sr/⁸⁶Sr and ²⁰⁷Pb/²⁰⁴Pb. Here, we demonstrate through modeling of Sr–Nd–Pb abundances and isotope ratios that the primitive Öræfajökull melts could have assimilated 2–6% of underlying continental crust before differentiating to more evolved melts. From inversion of gravity anomaly data (crustal thickness), analysis of regional magnetic data, and plate reconstructions, we propose that continental crust beneath southeast Iceland is part of ∼350-km-long and 70-km-wide extension of the Jan Mayen Microcontinent (JMM). The extended JMM was marginal to East Greenland but detached in the Early Eocene (between 52 and 47 Mya); by the Oligocene (27 Mya), all parts of the JMM permanently became part of the Eurasian plate following a westward ridge jump in the direction of the Iceland plume.