Iceland, located in the climatologically sensitive subarctic zone, is one of the key areas for studying climate change and the current Arctic warming. Poor and rich heathland covers approximately 30% of Iceland, with heath vegetation being the area’s most important vegetation type. Prostrate and erect dwarf shrub and shrub species are the primary sources of dendrochronological information on the changes and characteristics of Iceland’s climate. Here, we investigate the dendrochronological potential of seven common Icelandic heathland species (Dryas octopetala, Calluna vulgaris, Salix arctica, Salix herbacea, Empetrum nigrum, Juniperus communis nana, and Betula nana) and explore the impact of climate conditions on their growth, particularly with regard to extreme meteorological events. We conducted comparative analyses among species and observed their climatic responses in a climatically, morphologically, and geologically homogeneous setting in north-eastern Iceland. After sampling, measurements, and cross-dating, we constructed local chronologies for the seven species. Of approximately 200 samples, only 113 were included in the final shrub chronologies. All chronologies covered at least 50 years, with few of them exceeding 100 years. Dendroclimatological analysis indicated that above-average temperatures in June and summer positively influence the growth of D. octopetala (June–September), J. communis (July–August), B. nana (July–August), C. vulgaris (June–August), and S. arctica (August–September). The opposite is observed for S. herbacea and E. nigrum. Climate–growth correlations indicate that the growth of these species is negatively correlated with temperature and positively correlated with winter and summer precipitation. Furthermore, among the long-lived woody species growing in Iceland, seven common species were used to assess the impact of extreme meteorological conditions on their growth. The most pronounced extreme year in the wood anatomy of Icelandic shrubs was 1979, depicted as very narrow or missing rings and as the blue ring in J. communis.