Gunnarsholt was named after Gunnar Baugson, grandfather Gunnar from Hlidarendi, how lived there, According to the Book of Settlement Gunnarsholt is one of many farms, which was desolated by the Hekla eruptions after the farmers had spent decades defending their lands against the sandstorms and travelling dunes. Early in the 19th century, the farmhouses had to be moved further south and early in the 20th century, the farm had to be abandoned. A year later, the land reclamation in the area was started and nowadays the landscape is lush green and partially wooded.
Gunnarsholt has been the headquarters of the government operated „Soil Conservation and Land Reclamation Centre” since then. Experiments are carried out with many species of plants. Grass and lupine seeds are coated with dust and fertilizer to prepare them for distribution from the air in the most desolated parts of the country.
A renowned stallion station is also operated at Gunnarsholt to improve the quality of the Icelandic horse breed. A centre for the rehabilitation of alcoholics was also on the premises until it was closed down on October 1st 2003.
Gunnarsholt is on the Saga trail for South Iceland.