Capelin is a small pelagic fish found in Arctic and sub-Arctic waters of the Atlantic and Pacific Ocean with the population that spawns around Iceland known as the Iceland-East Greenland-Jan Mayen stock. This stock primarily spawns in coastal areas in the south and southwest of Iceland during March–April with the larvae drifting north with the currents towards the nursery grounds after hatching. However, information on the distribution of capelin larvae around the Icelandic shelf is lacking. Our objective was to document the distribution and investigate the influence of environmental factors on the distribution, presence/absence, density, and body size of capelin larvae in Icelandic waters. Plankton samples were taken around the Icelandic shelf in May 2017–2020 and any capelin larvae present were counted, measured and density was calculated. Our results showed high densities of larvae west of Iceland with the samples being dominated by small larvae (< 20 mm) and newly hatched larvae (< 10 mm) being caught in all areas, especially in eastern Iceland. Modelling of distribution using Generalized Additive Models demonstrated that warmer waters (> 8 °C) had a negative effect on capelin larvae density with no significant influence of the level of primary (measured as level of Chl-A) or secondary (measured as zooplankton dry weight) production on larval distribution. Low levels of large larvae (> 20 mm) are likely due to these larvae having drifted outside of the survey area and heading towards the nursery areas in northwestern and northern Iceland.