Surrogate motherhood has been prohibited by Icelandic law since 1996, but in recent years, Icelandic couples have sought transnational surrogacy in India and the United States despite uncertainties about legal parental status as they return to Iceland with infants born to surrogate mothers. This reflects global trends of increased reproductive tourism, which forces restrictive regimes not only to make decisions concerning the citizenship and parentage of children born to surrogate mothers abroad, but also to confront difficult moral issues concerning surrogacy, global justice, human rights and exploitation. In March 2015, a legislative proposal permitting altruistic surrogacy, subject to strict regulation and oversight, and prohibiting the solicitation of commercial surrogacy abroad, was presented in the Icelandic Parliament. The proposal aims to protect the interest of the child first, respect the autonomy of the surrogate second, and accommodate the intended parents’ wishes third. After a brief overview of the development of the surrogacy issue in Iceland, this article describes the main features of this legislative proposal and evaluates it from an ethical and global justice perspective. It concludes that the proposed legislation is a response to problems generated by cross-border surrogacy in the context of evolving public attitudes toward the issue, and constitutes a valid attempt to reduce the moral hazards of surrogacy consistent with insights from current bioethical literature. Although the proposed legislation arguably represents an improvement over the current ban, however, difficult problems concerning evasive travel and global injustice are likely to persist until effective international coordination is achieved.