The hosts found themselves in front after 11 minutes when Bale's free-kick was met by James Collins to head his first international goal in four and a half years.
But Iceland levelled as Johann Berg Gudmundsson's effort was diverted beyond Wayne Hennessey by the unfortunate Ashley Williams.
Sam Vokes restored Wales' lead in the second half with a simple header after Bale's effort was blocked on the line, before the world's most expensive player got on the scoresheet himself with a fine finish into the bottom corner.
Chris Coleman handed a full international debut to Manchester City youngster Emyr Huws, who is currently on loan at Birmingham, while Collins and Vokes were the other two changes from the 1-1 draw with Finland back in November.
The game marked 137 years to the day since Wales' first ever home international and a sense of optimism surrounded the Cardiff City Stadium as preparations for the Euro 2016 qualifying campaign begin.
With Wales starting brightly, that optimism looked to be well-placed as Collins headed the hosts into an eleventh-minute with lead with the game's first real chance of note.
After being cynically hacked down by Aron Gunnarsson out wide on the right, Bale whipped an inviting cross towards the six-yard box and the West Ham defender rose to nod it beyond the helpless Halldorsson.
Bale's early touches were greeted by adoring cheers from the home fans and he looked to double his side's lead almost immediately, skipping inside of numerous defenders before drilling a low effort into the arms of Halldorsson.
Wales appeared to be in control, although they were issued a warning when Gylfi Sigurdsson found Kolbein Sigthorsson lurking in the area, but he could only dink his effort over the bar under the close watch of Williams.
If it was not already, the evening soon began to turn into the Bale show, with Wales feeding him at every opportunity, and he stung the palms of Halldorsson with a dipping strike from range before an inch-perfect cross with the outside of his boot was headed over by Hal Robson-Kanu.
Despite Wales' dominance of possession, they proved to be the masters of their own downfall as the visitors found themselves on level terms midway through the first half after a defensive lapse.
The hosts failed to clear their lines inside the area and when the ball found its way through to Gudmundsson at the back post, he looked to sweep it past Hennessey, only for the outstretched leg of Williams to do the hard work for him and divert it past the sprawling goalkeeper.
Wales looked to regain their foothold of the game with a swift attack and after being fed by Bale, Robson-Kanu fired curled an effort wide as the tie remained level at the break.
On the right wing, Bale continued to trouble the Iceland defence and he wriggled his way towards the byline, with Vokes lurking in the box, but his cutback was cleared into the path of Huws who could only blaze over.
Then, with an almost carbon copy of the previous attack, Wales found themselves back in front through the in-form Burnley striker as he headed home from close-range after more good work from Bale.
Storming into the area, the Real Madrid star was unlucky to see his effort blocked on the line by Kari Arnason, but Vokes was on hand to restore the lead with an instinctive touch from two yards out.
Bale then deservedly got in on the act himself with an excellent solo finish, skipping past a host of Blue shirts before finding the bottom corner with aplomb with 20 minutes remaining.
Moments later, Bale was replaced by Jonathan Williams to a standing ovation, before Robson-Kanu and Daniel Gabbidon saw late chances deflected over the bar.
Bjarnason fired wide in stoppage time but it was a relatively straightforward evening for Coleman's side.