Do I really need a 4X4 car for my travel?

I would grr a 4x4. We have rented those on every trip and only once have wee done the F roads. I like these because they have a higher clearance which is really nice to have on anything once you get off of the ring road. Just going from the ring road to a site is often times a rough gravel road, and that extra clearance can be especially nice. One example off the top of my head is getting to Dettifoss on the east side. We had a Land Cruiser and I cannot imagine making that drive in anything less. We are headed back again this summer mainly for the Westfjords and everyone I checked with said a 4x4 hands down for there, FWIW.

Well, from another perspective, I've been to Iceland twice and both times I rented what was bascially a matchbox on wheels, definitely not a 4x4. Both times I was based in Reykjavik and did lengthy day trips, along the south coast to Vik, and up the west coast out to the tip of the Snaefellsness Peninsula.
The only time I might have needed a 4x4 was when we drove to Kleifarvatn Lake, which is near Reyjavik. There was a stretch that was a gravel road, then it turned to paved along the lake. We just went slowly along the gravel part.
Actually, now that I think about it, the car I rented on my first trip was a Toyota Yaris and there was a sticker on the dash that said it was okay to drive on F roads. I remember being quite suprised. The Yaris is very small.
So unless you are planning to ford rivers, you can probably get away with not having a 4x4.

We had a Dacia Duster SUV (not 4x4) for our Ring Road trip. It was fine on gravel roads and we even did a bit of an F-road because the first part didn't look too bad. My husband is experienced in driving off road in the Colorado mountains, if that matters.

Someone mentioned the east side of Detifoss. We took the west side and it is paved the whole way.

I have rented three different cars in Iceland, in September and in December. In September, I rented a non-4x4 vehicle to drive the Ring Road. I don't remember the model, though I believe it was an Opel. I had no issues with traveling the Ring Road with it, but I certainly didn't veer off onto any obscure side roads.

My biggest issue was coming up over a hill and nearly running into sheep in the middle of the road, which happened a few times. The car never gave me any problems.

Just generally wondering what kind of condition the rental vehicles are in when picking them up. Do most folks get the insurance from the rental agency?

We have rented from Blue three times so far, and so far the cars have all been in excellent condition when we picked them up as well as when we dropped them off. We do opt for the full insurance through Blue as I just don't want any surprises and don't want the hassle of suing our cc insurance overseas. There are too many things like sand and ash etc in Iceland for us to not for anything less than full coverage, but that is just our comfort level and yours may be different.

Jean, we also rent through Blue (nice cars) and we always get their full insurance. The extra protection for sand and ash and whatever may get wind-blown is worth it.

My rental car was a Subaru Outback. We traveled the ring road and went through Westfjords. We were on dirt and gravel roads. The car did everything we needed. I wouldn't have wanted to drive a car any larger due to the narrow roads.

Thank you for the replies!

You don't need a 4x4 since there is no reason you would have to go on F roads. I usually get a Dacia Duster all-wheel drive for some of the gravel highways I end up on in the northwest. A regular rental car is totally fine as most things aren't too far off the highway and, at worst, have a gravel parking lot. It's fine.

July makes a huge difference, too. Most of the year, I’d want 4-wheel drive, even for good, paved roads. But in July, not required. I’m glad we had a 4x4 Chevy on our trip in April a few years ago.

For sure if you visit Landmannalauger, There's clearly posted signage that delineate the "F" roads and the all the laws violated if you are not in a 4X4. There's some pretty good river crossings going in and out if you take the other way out. We rented a 4X4 Dacia Duster diesel and I was up to the top of the hood in water four times on a two week 1,800 mile trip all around Iceland. While driving the "F" roads we encountered about 10-12 river crossings.

We drove the ring road plus 5 days in the westfjords last summer in a campervan (not 4x4). You do not need a 4x4 unless you really want to get on the F roads. There were long stretches in the westfjords where it wasn't paved but pretty smooth.

The worst roads for us were: drive down to Thakgil campsite (clearance might've helped a bit but a 4x4 wasn't needed), road to Latrabjarg (road was OK but scary because it's super narrow and you're driving next to a cliff) and Melanes campground (similar to Thakgil).