Not my specific area of speciality, but here's the basics:

When Denmark fell to the Germans in 1940, Iceland was 'preventatively' occupied by the British. They did not resist; while it was formally neutral, it was an excellent example of an 'allied-friendly' neutral country during the war - it did not commit as a combatant, but was able to provide some strategically helpful assistance. For example, Icelandic airbases were among those that allowed the Allies to move aircraft (which could not cross the Atlantic in one flight) to the UK in two 'hops'; they were also extremely useful in anti-submarine operations. Iceland was also in a strategic position with regard to North Sea shipping lanes, which saw serious action during the war thanks to German attempts to disrupt the US Lendlease contribution to the Soviet War effort via convoys to the ports in Archangelsk and Murmansk. That strategic position on the most direct Great circle route between the US East Coast and the USSR is the key context for US policy decisions towards Iceland between 1941 and the end of the Cold War.

During the war, Iceland saw an economic boom, as the influx of Allied resources associated with the war effort into such a small country had a big impact. The Marshall plan cash could certainly have been justified solely within the context of Iceland's contribution to the war effort, and their need for continued economic support after wartime investment was scaled back. But this was not the whole picture.

Iceland's position became even more strategically useful during the Cold War, for providing surveillance and monitoring of potential Soviet submarine, aircraft, and eventually, missile activity. There was even the possibility, seriously considered later in the Cold War, of using Iceland as a nuclear weapons base to threaten the USSR - the GWU National security archive has some of the declassified material on this: https://nsarchive2.gwu.edu/nukevault/ebb557-US-Debated-Secret-Nuclear-Deployments-in-Iceland/

So, Iceland's strategic position, across direct air and sea routes between the USA and USSR, was the key reason why Marshall plan investment in Iceland was so substantial.