About 10 percent of Iceland's population turned out in the capital, Reykjavik, to congratulate the team on reaching the Euro quarterfinals. Players and fans sang the "huh" Viking war chant.
The team's plane flew low over the capital as they arrived home from their first-ever European championship on Monday.
An estimated 30,000 people took to the streets and gathered at Reykjavik's Arnarholl, a hill where the Supreme Court building is located, to welcome the players home.
Players waved from atop an open double-decker bus as fans waved flags and team jerseys, and children held cards with their favorite players. Later, the team was joined by their supporters in performing the Viking war chant, punctuated by hand clapping.
Originally seen as the underdog, the Icelandic national team was eliminated on Sunday night by France 5-2, having reached the quarter finals.
Outgoing co-coach Lars Lagerbäck called it a magnificent reception, saying the team had only a partial sense while playing at the Euro in France of the excitement back home.
"But now to see the people waving along the way from the airport to the city centre is simply fantastic," Lagerbäck said.
Striker Kolbeinn Sigthorsson, who scored a consolation goal in the crushing 5-2 defeat to the hosts said he was happy to be home.
"We experienced something simply wonderful, it was a dream come true and we are proud to have brought such cheer to our country," he said, adding that the friendly behavior of the fans had done the country proud.
Prime Minister Sigurdur Ingi Johannsson told the team "you are a national treasure!"
mm/jr (AFP, dpa)