GPS geodetic observations 1986–1992 spanning the oblique plate boundary on the Reykjanes Peninsula, SW Iceland, show that left‐lateral shear strain is accumulating in the area. The principal strain rates are: έ1=0.255 ± 0.055 µstrain/yr (extension) at N121 ± 6°E, and έ2=‐0.190 ± 0.053 µstrain/yr (contraction) at N31 ± 6°E. The principal axis of extension is perpendicular to the strike of fractures within volcanic systems on the Peninsula. The direction of maximum left‐lateral shear strain is N76 ±6°E, the same as the trend of the seismic zone on the Peninsula. Tensor shear strain in this direction is −0.222±0.054 µstrain/yr. Continuous aseismic slip of the North American‐Eurasian plates below a 5–11 km locking depth on the Peninsula can explain the observed depth of earthquakes, the width of the deformation zone determined from recent fissuring and faulting, and the GPS‐measurements of strain.