Sufficient Time to Transfer at Frankfurt Airport?

One issue is the in bound flight being on time. And there being no snafu with luggage transfer, (presumably in Iceland?)

Can anyone see any sources of delay or find this 3 hours a tight squeeze?

Yes, I can (easily). Your arriving flight may be delayed. Stuff happens.

I had a layover of about 2.5 hours at FRA last summer (arriving on Lufthansa, departing on United). I made it, but just barely, and only because our departing flight was late too. In my case, I was all on one ticket, so we could have managed if we missed the connection.

In your case, it looks like you have two separate tickets. What you need to ask yourself is, how bad would it be if you miss your connection? You would (presumably) need to buy a replacement ticket on the spot(?), but you need to look at what would happen to your plans if you miss that flight....does the rest of your trip plan collapse? Is there another flight that same day that gets you to where you need to go, or would you have to overnight? How long would it take you to get there? Would there be a cascade effect on the next days?

It might be just fine, or it could be the start of dominoes falling...you need to game out the alternatives and have a plan for contingencies, then ask yourself how much risk you are OK with.

thanks for the replies! The Icelandair flight, from flight history, looks like it's max 20 minutes late. I guess our best strategy is to try to figure out how to make sure our bags come off the plane first rather than last. I've heard that not checking in TOO early helps, and also indicating that suitcases contain fragile items, may put your bag "last in, first out." Travel definitely challenges my ability to "go with the flow," but it is a good way to acknowledge that these glitches are nothing compared to what so many in the world face in daily life. I'm just lucky to be able to travel.

If you are sitting in 1st class or Business class then you are in luck; those are always the first bags to come out, they have a separate container from the hoi polloi . I use to work for an airline.

Just to give you an idea of "normal" times: Baggage can be slow to arrive in Terminal 1 (I waited 45 minutes after flight arrival last time), but I heard Terminal 2 is more efficient--I don't arrive there often, so not much personal experience. Maybe 20 to 30 minutes?
Iceland is a Schengen member state, so if your flight is coming from Iceland, you will not go through immigration (and customs is not usually an issue if you have nothing to declare, unless in case of a random check). I'd figure about 15 minutes to get from baggage claim in T2 to check-in at T1. I'd assume about 10 minutes waiting time for baggage drop-off (self-service machines).
T1 is huge, so depending where your gate is, there may be another 15 minutes walk involved. The regular security lines vary a lot (and Frankfurt is not known for very efficient security checks), but I don't think you will have to wait more than 10 minutes in the fast lane.

Thanks, so much! This is exactly the information I was hoping for and I appreciate how specific you are in talking about the segments of getting from arrival to departure gate. This is reassuring—-though of course “things happen” and the “normal” isn’t what we always get.