The best time is between 21:00-03:00 although they can often be seen early evening or during the night. The official Northern Lights season in Iceland is from October till March. The more activity the more likely it is that you will see the northern lights but that is not all. There is never a guarantee of spotting the northern lights, but northern lights forecast by vedur.is are good. Clear skies are necessary, when we have clear skies in Iceland It is usually cold. So be sure to wear the right clothing.
Northern Lights Forecast
The Icelandic Met Office does Northern Lights Forecast which is good to use.
Visit the Icelandic Met Office www.vedur.is, for more info.