All three goals scored in the first half of the match precipitated Turkey's first loss in the qualification matches after three wins in a row.
Iceland beat Turkey 2-1 at home in Group H in EURO 2020 qualifiers on Tuesday evening.
At Laugardalsvoellur Stadium in Keflavik, the home team scored the opening goal in the 21st minute, when Johann Gudmundsson's curved free-kick cross towards Turkey's back met with Ragnar Sigurdsson, who had the finishing header to lead Iceland 1-0 against Turkey.
Sigurdsson grew Iceland's lead to 2-0 in the 32nd minute with another header, this time a tap-in.
Turkey replied with a header goal of its own in the 40th minute, as Dorukhan Tokoz scored to bring Turkey back into the contest.
The game was Turkey's first loss in the group after three wins in a row.
Turkey has 9 points in 4 matches in Group H in Euro 2020 qualifiers.
On Saturday, Turkey defeated the defending world champions France for the first time in its history 2-0 to lead Group H in Euro 2020 qualifiers.
In their other group matches so far, Turkey defeated Albania 2-0 and beat Moldova 4-0.
Here are the latest standings in Group H after Tuesday's matches:
Iceland's reception of Turkish team sparks controversy
The Turkish national football team arrived in Keflavik International Airport on Sunday night where they were kept waiting for several hours at passport control at and subjected to extensive security checks, according to accounts from the players carried by Turkish media.
Turkey issued a diplomatic note for Iceland to condemn the mistreatment of Turkish footballers at the airport.
Before the match, Turkey’s Youth and Sports Minister Mehmet Muharrem Kasapoglu met with Iceland's Minister of Education, Science and Culture Lilja Dogg Alfreosdottir in Reykjavik.