Celtic, who were seeded for the draw, are scheduled to play the first leg of the tie on 15/16 July at Murrayfield, with a trip to Iceland the following week.
However, the Scottish champions are already in discussions with their Icelandic rivals over the possibility of swapping the ties with the second leg in Scotland.
The Hoops defeated Cliftonville at the same stage of the competition last season, and this time around the Solitude team have been paired with Hungarian side Debreceni.
Irish champions St Patrick's Athletic face a tricky trip to Poland to play their first-leg against Legia Warsaw, while Welsh side The New Saints have drawn Slovan Bratislava.
This season's qualifiers featured a team from Gibraltar for the first time, and Lincoln FC will entertain Torshavin of the Faroe Islands, with the winners playing Sparta Prague.
Deila admits the draw affords his side a chance of advancing to the next round of the qualifiers but insists they must be cautious against a side already up and running in their league.
"It's an ok draw," he said. "Reykjavik is a good team and Icelandic football has improved a lot over the past few years.
"So we have to treat them with respect but of course we are favourites and we are going to do everything to win that game. We have a very good squad and and a very good team."
On the prospect of playing the tie at Murrayfield, with Celtic Park unavailable due to the Commonwealth Games, Deila, added: "I think that is exciting for the team and for the fans as it is something different.
Former Middlesborough youngster Gary Martin moved to KR Reykjavik two years ago, and the 23-year-old is relishing the prospect of palying against Celtic.
“It’s a dream come true for the lads. We were talking about it yesterday and we said if we could have one team, especially for me being British, it would be Celtic,” Martin said.
“They are a massive team and to get them is fantastic.
“We’re massive underdogs and they have some fantastic players. They normally make it to the group stages of the Champions League, and the last 16 a few times, so we are massive underdogs but we’re looking for the experience.”
UEFA Champions League first and second qualifying round draw:
Santa Coloma v Banants
Lincoln FC v HB Torshavn
Fiorita v Levadia Tallinn
Tie to be played 1/2 and 8/9 July
BATE v Skenderbeu
Maccabi Tel-Aviv v Santa Coloma/Banants
Dinamo Tbilisi v FK Aktobe
Zrinjski Mostar v Maribor
FC Sheriff v Sutjeska
Sparta Prague v Fiorita/Levadia Tallinn
Malmo FF v Ventspils
Slovan Bratislava v TNS
Celtic v KR Reykjavik
Cliftonville v Debrecen
Partizan Belgrade v Lincoln FC/HB Torshavn
Legia Warsaw v St Patrick's
Rabotnicki v HJK Helsinki
Dinamo Zagreb v VMFD Zalgiris
Ludogorets Razgrab v F91 Dudelange
Valletta v FK Karabakh
Stromsgodset v Steaua Bucuresti
Tie to be played 15/16 and 22/23 July