High rates of Holocene sedimentation in a lake spanning the Thingvellir rift zone of western Iceland provide an unusual opportunity to study the interaction of tectonic and magmatic processes on time scales of thousands of years. Lake Thingvallavatn is oriented SW-NE, parallel to the trend of normal faults and fissures, which extend northeast from Hengill, a central volcano system. Thingvallavatn's lake sediments provide a continuous high-fidelity record of tectono-magmatic processes. Chirp subbottom profiler and sidescan records, together with sediment core information, enabled us to improve constraints on lake stratigraphy since the emplacement of a postglacial lava at 9.1 ± 0.3 ka. This lava, together with three younger horizons, enabled detailed study of the main tectonic and magmatic events. A major Hengill volcanic event, which controlled the development of the present-day lake morphology, occurred at 1.9 ka, with the eruption of a scoria cone within the lake (Sandey). During this event, the Nesjahraun lava was erupted into the southern part of the lake, the Sandey scoria cone was formed, and major faulting and subsidence occurred in the northern part of the lake, resulting in the formation of an asymmetrical rift. Within the southern part of the lake, a deformed sequence of sediments aged 2.9–1.5 ka, between undeformed younger and older sediments, indicates that liquefaction phenomena are associated with the emplacement of the Nesjahraun lava. Analysis of fault displacement reveals that the total throw summed over all faults across the width of the rift zone is approximately constant (110–130 m) along the long axis of the rift. We estimate an extension rate on the faults of 3.3–8.2 mm yr−1 since 9.1 ka, assuming fault dips of 60–75°, which represents 17%–43% of the total plate boundary extension estimated from global plate motion inversion. We speculate that the remaining extension must either be taken up elsewhere in Iceland, for example in the eastern rift zone or along the South Iceland seismic zone, or that extension estimated over the last 9 k.y. underestimates the long-term extension rate due to incomplete sampling of the episodic magmatic component.