The Torfajökull volcanic system is one of approximately 30 active volcanoes comprising the neovolcanic zones of Iceland. The central volcano of the system is the largest silicic centre in Iceland with a caldera of approximately 12 km diameter. Its high-temperature geothermal system is one of the most powerful in Iceland. Torfajökull is a source of persistent seismicity, where both high- and low-frequency earthquakes occur. To study this microseismicity in detail, a temporary array of 20 broad-band seismic stations was deployed between 2002 June and November. These temporary stations were embedded in the permanent South Iceland Lowland (SIL) network and data from nine adjacent SIL stations were included in this study. A minimum one-dimensional (1-D) velocity model with station corrections was computed for earthquake relocation by inverting manually picked P- and S-wave arrival times from events occurring in the Torfajökull volcanic centre and its surroundings. High-frequency earthquakes from the Torfajökull volcanic centre were then relocated calculating a non-linear, probabilistic solution to the earthquake location problem. Subsequently, we correlated the waveforms of these 121 events (∼2000 observations) to define linked events, calculated the relative traveltime difference between event pairs and solved for the hypocentral separation between these events. The resulting high-resolution pattern shows a tighter clustering in epicentre and focal depth when compared with original locations. Earthquakes are mainly located beneath the caldera with hypocentres between 1 and 6 km depth and lie almost exclusively within the geothermal system. A sharp cut-off in seismicity at 3 km suggests either that there is a marked temperature increase or that this is a structural boundary. No seismic activity was observed in the fissure swarms to the northeast (NE) and southwest (SW) of the volcanic centre.