Goals from Ragnar Sigurdsson and Kolbeinn Sigthorsson gave the minnows a remarkable victory in France on Monday, and saw them progress to the quarter-finals of the competition in the process.
It was another dark day in English football as manager Roy Hodgson tendered his resignation immediately afterwards, triggering a post-mortem of what exactly went wrong in France, something that has become a reoccurring procedure following major tournaments.
England's most-capped player Shilton, who amassed 125 appearances from 1970-1990 and helped the country to fourth place at the 1990 World Cup, was left to lament the defeat, and claims that Iceland's feverish support - and their intimidating viking chant - got under the Three Lions' skin.
Shilton also took Joe Hart to task, with the Manchester City goalkeeper allowing Sightorsson's tame effort to squirm under his fingers.
"'Very disappointed' would be an accurate description of my current state of mind. England's defeat is easily the biggest shock of Euro 2016, because it came against Iceland," Shilton wrote for the Times of India.
"Throughout the tournament, I kept waiting for England to start playing well though they dominated their earlier three games. On the night that mattered, we gave away two easy goals. That has been one of my fears regarding England.
"The first goal, in particular, was just a basic long shot, the kind of goal you wouldn't lose at the local park, a schoolboy goal. If that was a result of bad defending, the second goal was a result of both bad goalkeeping and bad defending. The tragedy is that quite a few of these English players have played well for their clubs but whether it was the pressure of playing for England or the way they were asked to play , or probably they didn't understand what they were doing, the team seemed to be making it up as they went along.
"Personally, I couldn't understand why Harry Kane and Jamie Vardy never started a game together. Initially, Kane was on his own, then Vardy and Daniel Sturridge played together, then you had Kane and Sturridge, even though Sturridge has battled injuries and had an in-and-out season. I wasn't happy with the team for the first game-and-a-half, where Raheem Sterling and Adam Lallana combined with Wayne Rooney because it seemed as though Roy Hodgson was searching for a winning formula and didn't know what his best team was.
"Having said that, England still have no excuse for the defeat. Consider this: the Iceland captain, Aron Gunnarsson, plays second division football in England, which, at least on paper, places England qualitatively above their opponents. Perhaps it was the terrifying Viking chant by the Iceland fans that did them in! I was alarmed watching it at home so I can only imagine what it was like at the ground.
"The team ought to be gutted… I imagine the England players will be devastated for weeks and weeks."