The huge warming of the Arctic that started in the early 1920s and lasted for almost two decades is one of the most spectacular climate events of the twentieth century. During the peak period 1930–40, the annually averaged temperature anomaly for the area 60°–90°N amounted to some 1.7°C. Whether this event is an example of an internal climate mode or is externally forced, such as by enhanced solar effects, is presently under debate. This study suggests that natural variability is a likely cause, with reduced sea ice cover being crucial for the warming. A robust sea ice–air temperature relationship was demonstrated by a set of four simulations with the atmospheric ECHAM model forced with observed SST and sea ice concentrations. An analysis of the spatial characteristics of the observed early twentieth-century surface air temperature anomaly revealed that it was associated with similar sea ice variations. Further investigation of the variability of Arctic surface temperature and sea ice cover was performed by analyzing data from a coupled ocean–atmosphere model. By analyzing climate anomalies in the model that are similar to those that occurred in the early twentieth century, it was found that the simulated temperature increase in the Arctic was related to enhanced wind-driven oceanic inflow into the Barents Sea with an associated sea ice retreat. The magnitude of the inflow is linked to the strength of westerlies into the Barents Sea. This study proposes a mechanism sustaining the enhanced westerly winds by a cyclonic atmospheric circulation in the Barents Sea region created by a strong surface heat flux over the ice-free areas. Observational data suggest a similar series of events during the early twentieth-century Arctic warming, including increasing westerly winds between Spitsbergen and Norway, reduced sea ice, and enhanced cyclonic circulation over the Barents Sea. At the same time, the North Atlantic Oscillation was weakening.