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Flateyri has been a trading post since 1792, and temporarily became a major whaling center in the 19th century. In October 1995 an avalanche hit the village, destroying 29 homes and killing 20 people. Since then a deflecting dam has been built to protect the village from any further avalanches. In the 1990s, Flateyri prospered as a fishing village and, but after the recession hit its main fishing companies shut down and many people left. A German fishing company has set up base in Flateyri and are currently fishing in and just out of Önundarfjörður.
The Esso gas station in Flateyri was the subject of a Belgian documentary in a series about gas stations around the world. The avalanche 1995 was also a subject of a feature documentary, 66°23 North West (The Day of The Avalanche), which premiered in a Reykjavik cinema at the 15th anniversary of the avalanche in 2010.
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