The global climate and biodiversity crisis has led to extensive restoration initiatives, calling for cost‐effective strategies harnessing the potential of natural processes. Natural colonization of target species is a key process in the scaling up of woodland restoration, and effective planning and implementation of restoration strategies requires a mechanistic understanding of colonization processes. In this study, we investigated patterns and processes of natural colonization of mountain birch (Betula pubescens ssp. tortuosa), the only native woodland‐forming tree species in Iceland, into adjacent treeless lands under diverse conditions, and its implications for low‐intensity restoration strategies. Accordingly, we assessed spatial patterns of seedling densities on transects extending from 10 birch woodlands in Iceland and analyzed the impact of local environments on colonization dynamics. Seedling densities generally decreased rapidly with distance from the seed source to around 40 m. In many study areas, however, birch seedlings were registered at high enough densities to potentially form woodlands, up to 140 m from a standing seed source. We identified a range of biotic and abiotic determinants of colonization, with the largest number affecting the early‐establishment phase of birch colonization, including safe site availability, wind speed and dominant direction, and grazing. Our results demonstrate a good potential for natural colonization as a restoration strategy for birch woodlands in subarctic environments, and they can furthermore be used to identify areas where birch colonization is likely to occur naturally and determine appropriate interventions that can facilitate birch colonization in areas where it is less likely.