For the first time, palynological data (pollen, spores and dinoflagellate cysts) from Pleistocene outcrop and core deposits from Flatey, off northern Iceland, are presented. The study provides a reconnaissance stratigraphical assessment of the deposits, the correlation between the Pleistocene of Flatey and the well‐known Tjörnes section on the mainland, and the reconstruction of the Pleistocene palaeoenvironment. The preservation of the assemblages is poor to moderate, whereas the diversity and richness are moderate to high. The pollen and spores indicate vegetation composed mainly of sedges and heath, comparable to the vegetation in the Tjörnes area during deposition of the Pleistocene Breidavík Group. Analysis of dinoflagellate cyst assemblages from an outcrop sample allowed their assignment to the Lower Pleistocene dinoflagellate cyst zone DAZ5, previously defined in the Tjörnes section. A core sample yielded a dinoflagellate cyst assemblage unknown from the Tjörnes area. The dinoflagellate cyst data combined with the palaeomagnetic record, the radiometric dating of lavas, and the position of the diamictites and tuff layers allowed refinement of the previously proposed stratigraphical correlations between the Tjörnes area and the Flatey core. The deposition of the sequence from the Flatey core took place during the Matuyama, i.e. between 2.59 and 0.78 Ma, and several hiatuses are postulated. The Lower Pleistocene dinoflagellate cyst assemblages from the outcrop sample bear similarities to those recovered from fully marine subsurface samples on the northern shelf of Iceland within the Polar Front realm. Similar oceanographical conditions influenced by the Irminger Current and the East Icelandic Current can be inferred for Early Pleistocene times.