Pilots had decided to land the plane when they were unable to determine what the smell was, the airline said, adding that it thought it would be best to figure out what the issue was while the plane was grounded.
The mayor of Reykjavik, Dagur Eggertsson, and the mayor of Philadelphia, Jim Kenney, were both on the flight, and the two were photographed together earlier on Tuesday while taking a tour of Philadelphia.
Kenney had been scheduled to remain in Iceland through Saturday, but he, along with all of the other passengers on the flight, were forced to stay the night in Boston, according to his office.
Mayor Kenny's Office confirmed the diversion in a statement early Wednesday, calling the incident a "significant inconvenience."
"The Mayor is disembarking the plane along with the rest of the delegation and spending the evening in Boston," the mayor's office said in a statement. "PHL Airport regrets the significant inconvenience this has caused all those on board. We and Icelandair are committed to doing all we can to ensure future travelers have a smooth travel experience on this new route. This is obviously very out of the ordinary."
Icelandair communications director Michael Raucheisen, who was also on the flight, told ABC News that there is currently "no timing" for when the flight will take off again and he does not know if a new aircraft will be sent to Boston to accommodate the displaced passengers.
Icelandair and the Philadelphia Airport celebrated the inaugural flight in promotional events that included a water cannon salute as the flight arrived and "a ribbon-cutting ceremony" with city officials from Iceland and Philadelphia. The festivities also featured traditional Philadelphia cheesesteaks, Icelandic hot dogs and a massive four-layer airplane cake.
Icelandair CEO Birkir Gudnason also attended the launch, which was heavily promoted on the airport's Twitter page.
Gudnason said the airline had been banking on the new service to "further strengthen" its presence in the Mid-Atlantic, according to a statement released Tuesday.
Icelandair had even introduced a new glacier-themed aircraft for the trip, the Vatnajokull, which the airline described as having an "interior inspired by an ice cave" and "specially designed LED lighting."
ABC News' Ahmad Hemingway contributed to this report.