Actavis said the new site will not use fossil fuel in tablet manufacturing and packaging, generating zero carbon footprint.
The company has invested about EUR8m in the expansion.
Following the expansion, the production capacity of the Hafnarfjordur, Iceland site will be about 1.5 billion tablets, around 96% of which are exported to the European markets.
Actavis CEO Claudio Albrecht said the site is 100% powered by geothermal energy, and is therefore the most eco-friendly pharmaceutical facility in the world.
"It meets both the ISO14001 environmental standard and the OHSAS18001 health- and safety standard, reflecting the strong Environment, health and safety commitment of our company," Albrecht said.
"This latest investment increases the production capacity in Iceland by 50%, giving us a significantly increased launch capability for the EU market."