We present findings based on a study of Y-chromosome diallelic and microsatellite variation in 181 Icelanders, 233 Scandinavians, and 283 Gaels from Ireland and Scotland. All but one of the Icelandic Y chromosomes belong to haplogroup 1 (41.4%), haplogroup 2 (34.2%), or haplogroup 3 (23.8%). We present phylogenetic networks of Icelandic Y-chromosome variation, using haplotypes constructed from seven diallelic markers and eight microsatellite markers, and we propose two new clades. We also report, for the first time, the phylogenetic context of the microsatellite marker DYS385 in Europe. A comparison of haplotypes based on six diallelic loci and five microsatellite loci indicates that some Icelandic haplogroup-1 chromosomes are likely to have a Gaelic origin, whereas for most Icelandic haplogroup-2 and -3 chromosomes, a Scandinavian origin is probable. The data suggest that 20%-25% of Icelandic founding males had Gaelic ancestry, with the remainder having Norse ancestry. The closer relationship with the Scandinavian Y-chromosome pool is supported by the results of analyses of genetic distances and lineage sharing. These findings contrast with results based on mtDNA data, which indicate closer matrilineal links with populations of the British Isles. This supports the model, put forward by some historians, that the majority of females in the Icelandic founding population had Gaelic ancestry, whereas the majority of males had Scandinavian ancestry.