In October 1875 the Canadian government reserved a tract of land along the southwest shore of Lake Winnipeg for the exclusive use of Icelandic immigrants. This was part of a larger policy of reserving land for colonization projects involving European immigrants with a common ethno-religious background. The purpose of this policy was to promote the rapid resettlement and agricultural development of Aboriginal territory in the Canadian Northwest. The case of the Icelandic reserve, or Nýja Ísland (New Iceland), provides a revealing window into this policy, and the ways in which it intersected with the larger processes of colonization in the region during the late nineteenth century. The central problem that this study addresses is the uneasy fit between "colonization reserves" such as New Iceland and the political, economic and cultural logic of nineteenth-century liberalism. Earlier studies have interpreted group settlements as either aberrations from the "normal" pattern of pioneer individualism or communitarian alternatives to it. This study, by contrast, argues that colonization reserves were part of a spatial regime that reflected liberal categories of difference that were integral to the extension of a new liberal colonial order in the region. Using official documents, immigrant letters and contemporary newspapers, this study examines the Icelandic colonists’ relationship to the Aboriginal people they displaced, to other settler groups, and to the Canadian state. It draws out the tensions between the designs and perceptions of government officials in Ottawa and Winnipeg, the administrative machinery of the state, and the lives and strategies of people attempting to navigate shifting positions within colonial hierarchies of race and culture.