Keflavik and Iceland layover at night

I would look at the Reykjavik website for bars or clubs that have late night music. I think the Ice Bar is a bit cheesy, but that's also an option. For a small-sized city, Reykjavik has quite a vibrant nightlife scene so I'm sure you'll find something (but find somewhere to stow your luggage). Are you planning on pulling an all-nighter? It takes about 30-45 min to get into town so if you stay out until 3:00am, you probably won't find much time to sleep before you have to get back to the airport. If you're flying Iceland Air, I'd highly recommend the free layover - that's how I saw Iceland for the first time.

Yes, we are planning on staying up, we intend on sleeping the fist portion of our trip, from Seattle to Iceland. We had thought about renting a car and keeping our luggage locked in the trunk, what do you think? We are flying Iceland air and will research the "free layover", never heard of that.
Thank you so much for the help.

Technically not "free" as any difference in the fare applies but that difference is probably going to be minimal. Basically you can stay up to 7 days via Icelandair (check out the website and just price it out) on the way to or from select European cities (in my case, I was headed to Frankfurt, Germany). I did not rent a car there because they have buses timed with every flight so it was a cheaper option for me. Reykjavik is very walkable and feels safe at all hours. Other than a car trunk, see if they have lockers at Keflavik or if they can hold your luggage through to your destination (I doubt it, but just throwing it out there)

Whatever the price difference, it will still be less than a separate trip to Iceland (if you play around with dates you can minimize the differential). I felt like I got two countries for the price of one - it was a great layover!

Thank you to all, we may try that on our next trip. However we were really looking for something to do while on layover over night.