The letter Y is pronounced exactly the same as the Icelandic letter i. It is pronounced similar to the English kid.
It can be long:
  • fyrir, lyf, lykill
Or short:
  • fyndið, lyklar, lykt, mynd
If the next letter is ng or nk, it is pronounced like ý:
  • syngur ([sýngur]), þyngd ([þýngd])
The name of the letter is “ufsilon” (the name comes from the Greek name of the letter, upsilon).
For historical reasons, Icelandic retains both y and i despite them being pronounced exactly the same. It is usually not possible to know which one to use without just memorizing the spelling. It takes years for Icelandic children to learn which words use y and which use i, and it’s quite common for adults to mix them up in certain words. It would be possible to remove the y from the language like was done with the letter Z in the 1970s, but few people support that idea.