I've been Iceland before we had children, but are planning to go back when the youngest is a bit older.
It's an amazing place.
As well as the whales, black beaches, geysers, painted houses and volcanoes, children would just love bobbing around in the naturally heated outdoor public swimming pools that are in every town - no matter how tiny.
Took my 10,8 and 6 year olds in May. It was amazing, they loved it, we found Reykavik fairly uninteresting but the natural environment is amazing. We stayed in a chalet on a farm which i would recomend as eating out is expensive and not that inspiring. Driving was fairly straightforward, we didn't bother with 4 wheel drive but we did cover a lot of KM's which the kids found a bit tedious. There is a great exhibition about the recent volcano which focuses on one families experience, loads of stunning waterfalls, glaciers geysers... everything a former geography teacher could dream of!
I (very badly) want to go there when my youngest is age 7+, age 9/10+ would be even better. When I was there (1995) I met family with a dd about 9/10yo, they were trekking long distance too, and staying in hostels iirc, is a good age to really appreciate it.
I would like to drive (ferry via the Faroes) & camp out, bring bikes if possible. This is actually my big holiday planned for about 2017-2018, now. Research carefully about things like what food you can bring and where to stay, is not a cheap place to visit.