We have determined the three-dimensional P wave velocity structure within the area of the Hengill-Grensdalur central volcano complex, southwest Iceland, from the tomographic inversion of 2409 P wave arrival times recorded by a local earthquake experiment. The aperture of the 20-element seismic network utilized in the inversion permitted imaging of a 5-km-thick crustal volume underlying a 15×14 km2 area. Within this localized volume are located the underpinnings of the active Hengill volcano and fissure swarm, the extinct Grensdalur volcano, and an active high-temperature geothermal field. It was thus expected that the characteristic length scale of heterogeneity would be of the order of a kilometer. In order to image heterogeneous seismic velocity structure at this scale we paid particular attention to the fidelity of the assumed model parameterization, defined as the degree to which the parameterization can reproduce expected structural heterogeneity. We also discuss the trade-off between the resolution of model parameters and image fidelity, compare results obtained from different parameterizations to illustrate this trade-off, and present a synoptic means of assessing image resolution that utilizes the off-diagonal information contained within the resolution matrix. The final tomographic image presented here was determined for a parameterization with fidelity that closely matches the geologic heterogeneity observed on the surface. For this parameterization, the resolution of individual parameters is generally low; however, a quantitative analysis of resolution provides an unambiguous assessment of well-resolved volumes. Within the better resolved regions of the model the averaging volumes are 1–2 km and 2–4 km in vertical and horizontal extent, respectively. Results of tomographic inversion image three distinct bodies of anomalously high velocity, two of these extend from near the surface to a depth of about 3 km. These high-velocity volumes are located directly beneath the surface expressions of the extinct Grensdalur volcano and the extinct Husmuli basalt shield. The third high-velocity structure occurs in the depth range of 3–4 km but does not extend to the surface. These three high-velocity bodies are interpreted to be solidified magmatic intrusions. Relatively low velocities underlay limited portions of the trace of the present accretionary axis and a low-velocity body is imaged in the roots of the active Hengill volcano. The volume of lower velocities located beneath the surface expression of the Hengill volcano is interpreted to be a region of partial melt.