Arrive Keflavik Airport 9am on Aug 1 and depart at 10:30am on August 2 - what to do?

If it were me, I'd go to Reykjavik directly and spend all my time there seeing the sites and doing a walking tour.

I think your plan sounds fine even though you may have to alter it if the BL is closed. You will probably be tired that day anyway.

When I had a 24 hour layover, I was coming back from Europe so I arrived in the afternoon and flew out the following afternoon. The first afternoon, I wandered around Reykjavik, went to the top of the Hallgrims Church, and had dinner. The next morning, I went to the Blue Lagoon. Reykjavik is quite compact.

You could also see if there are any half day excursions. Most of the excursions seemed to be a full day when I looked (10 years ago). There were half day whale watching tours when I was there, but the time didn’t work for my layover.

I would not rent a car as coming in on an overnight flight, jet lag is real and you don't want to be driving all over without proper sleep. Take Flybus or a taxi from KEF into Reykjavik. The Flybus is cheaper, but makes a stop at the central bus terminal where you get onto smaller buses and then taken to your hotel. That runs $37 per person, each way. A taxi can get you there door to door, and that runs $120-$140 each way.

Instead of the BL. I would opt for either Sky which is in Rekjavik but not walking distance of most things, or head to Hvammsvik which is about 45 minutes north of town. I love both, but Hvammsvik is especially nice and far less crowded.

In Reykjavik, I highly recommend the food tour which lasts 3 hours as well as the Citywalk "free" walking tour (tip at the end). Both are excellent and we have done both of them more than once.

You could also try for a half day tour or do a private tour, which you can arrange through various companies. A day in Reykjavik though would be very nice as there is so much to see and do there

I too would probably go to Reykjavik on the shuttle bus, just make sure you give yourself plenty of time on return as it is a decent 45 minute drive from the airport to the city. By the time you clear the airport and get to town it will be 11-ish, you can drop your bags at your hotel (check in if they let you) and then you can head out for a walk about town (there is a fine walk outlined in the RS guidebook, check it out from the library). If it were me I'd join a late afternoon food tour (I did this one) to get a taste of Iceland and have a walking dinner.

Thanks everyone for your thoughtful suggestions. Very much appreciated. I'm working on this today and hope to get everything set.