<p>Coastal communities in Iceland have experienced significant socio-economic change in response to long-term transformations in fisheries and broader rural development pathways. While labor diversification and social cohesion are commonly identified as key components of community resilience, the literature suggests that economic diversification may undermine socially cohesive fishing-based identities, creating a Catch-22 in which the simultaneous strengthening of local economies and communal bonds becomes unfeasible. Drawing on an integrated approach to community resilience, this study examines how economic diversification and social cohesion interact across five rural Icelandic communities. Based on eighteen semi-structured interviews with key informants, the thematic analysis shows that this relationship is neither inherently conflicting nor uniformly reinforcing. Rather than constituting a fixed Catch-22, resilience emerges through context-specific interactions shaped by embedded community characteristics, including seasonality, job quality, governance arrangements, infrastructure, leadership, and the integration of foreign labor. The findings demonstrate that labor diversity alone does not enhance resilience; employment must be stable, meaningful, and aligned with local capacities and aspirations to contribute positively to social cohesion and long-term viability. The study further reveals that fisheries remain central to local economies and identities in Iceland, yet contemporary employment in the sector is increasingly stratified and less socially integrative than in the past. Overall, the results underscore that community resilience is an ongoing, non-linear process shaped by place-based conditions, long-term fisheries dependence and adaptive capacities, highlighting the importance of integrated, bottom-up, and context-sensitive approaches to rural policy and development.</p>