It was a miserable evening for Portugal’s top scorer Cristiano Ronaldo even though he equalled Luis Figo’s record of 127 caps for his country.
Iceland produced a typically industrious performance in their maiden appearance at a major tournament with winger Birkir Bjarnason cancelling out Nani’s first-half opener.
Although Portugal dominated for long spells, the result was no more than Iceland deserved.
“We should have scored more goals but we didn’t and pragmatic Iceland took full advantage,” Portugal coach Fernando Santos told a news conference.
“It was by no means a brilliant performance by us. We have to move better between the lines and keep our focus in defence.
“Considering today’s results, our next game against Austria could have a huge impact. I always said this was a complex group and I still think anything can happen,” added Santos.
With Hungary beating Austria 2-0 earlier, a fascinating battle for late-16 berths looms with Iceland taking on Hungary in their next game.
A string of good saves by goalkeeper Hannes Halldorsson, coupled with Ronaldo’s wasteful finishing, was a significant factor for the Nordic nation who fulfilled their pre-match promise to show no nerves.
They went close in the third minute when keeper Rui Patricio denied Gylfi Sigurdsson with a double stop, smothering the rebound after parrying the midfielder’s first effort.
Portugal eventually got into their stride but the final pass kept going astray in the opening 20 minutes, with Iceland’s back four able to close down Ronaldo and Nani.
The pattern changed after Nani drew a superb reflex save from Halldorsson who kept out his close-range header after Ronaldo delivered a perfect cross from the left.
Iceland saw little of the ball from there on as Ronaldo sent a looping header over the bar and then scuffed his shot straight at Halldorsson after a defence-splitting pass by Pepe.
Portugal, who had 67 percent possession in the first half, made their dominance count after a sweeping one-two between Vieirinha and Andre Gomes on the right handed Nani a simple task to steer the ball home from seven metres.
Roared on by their fans, Iceland equalised out of the blue in the 50th minute as Bjarnason swept in a teasing Johann Gudmundsson centre that caught out Vieirinha.
It seemed to take the wind out of Portugal’s sails, with Ronaldo looking short of pace, although Nani came close to restoring their lead after a glancing header sailed just wide.
Halldorsson then stopped dangerous shots by Gomes and Raphael Guerreiro as well as a deflected Ricardo Quaresma effort before substitute Alfred Finnbogason almost grabbed what would have been a remarkable winner at the other end.
Rui Patricio was barely able to palm away the striker’s stinging drive from the edge of the penalty area as Portugal ended up running out of ideas.
Iceland co-coach Heimir Hallgrimsson, who shares the job with Swede Lars Lagerback, said the draw boosted his team’s hopes of reaching the last 16.
“With a win against Hungary we’d probably be almost there and holding the group’s strongest team to a draw should be a massive confidence boost,” he explained.
“Our defending was fantastic, we were well organised and worked really hard. It’s difficult to single out any individual player as they all deserve credit for a stirring team effort.
“It’s really good to have a point. We can go a little bit more relaxed into the next game,” said Hallgrimsson.