Mario Mandzukic scored but was then sent off, all within the first half, and Darijo Srna netted a second early in the second period. Iceland could find no way back and the 2-0 scoreline was enough to see Niko Kovac's side to Brazil.
Croatia dominated from the outset, with Kari Arnason blocking Luka Modric's effort and Darijo Srna's free-kick brilliantly saved by Hannes Thor Halldorsson.
Iceland's only response before the interval was a weak Gudmundsson effort easily saved by Stipe Pletikosa and a blast over the bar from Gylfi Sigurdsson.
With nine shots to two, six corners to nil and 66 per cent possession, Croatia were good value for their lead and they added a second goal two minutes after half-time.
Following a good run by Mateo Kovacic, Srna's bobbling angled drive eluded Halldorsson's dive and found the net as the keeper reacted too late. Halldorsson made a good save to deny Perisic and from the resulting corner, Ivica Olic's overhead effort hit the crossbar.
Iceland appealed in vain for a penalty after Rurik Gislason went down under Josip Simunic's challenge but the visitors were struggling to create any clear chances.
Their best effort came when captain Sigurdsson fired a left-foot effort just over with five minutes remaining and Croatia could even have made it 3-0 through substitute Ante Rebic late on.