The Vatnsfjordur bay is about 9 km long with the island Engey at its mouth. The surroundings are picturesque to say the least, such as the valley Vatnsdalur with its excellent trout and char fishing lake Vatnsdalsvatn and salmon river Vatnsdalsa. The Breidafjordur ferry Baldur upholds constant communications between Stykkisholmur, Flatey and the ferry point Brjanslaekur on the Vatnsfjordur Bay.

One of the three discoverers of Iceland, mentioned in the Book of Settlements, Floki Vilgerdarson, entered this bay and spent the winter there. He climbed a high mountain, probably Lonfell (752m), and saw down into another bay further north, totally filled with ice. He named the country accordingly Iceland. Nearby, at the end of the fiord in beautiful surroundings, is the hotel Flokalundur.