England took control when West Ham United's Declan Rice glanced in a header from a free kick on 20 minutes and the lead was doubled four minutes later when Chelsea midfielder Mason Mount pounced on a bouncing ball in the box to finish calmly.
The second half started badly for Iceland when Birkir Mar Saevarsson, who was playing his 95th game for his country, was sent off for a second yellow card.
Manchester City's 20-year-old midfielder Foden made it 3-0 with 10 minutes to go with his first goal for England and added a long-range effort to make it 4-0.
England had already failed to qualify for the Nations League finals after a 2-0 loss on Sunday to one of the tournament's favourites Belgium, while Iceland had already been relegated to League B.
England are still haunted by their defeat to Iceland in the 2016 European Championship, but dominated possession and chances throughout on Wednesday without really going through the gears.
Rice's opening goal come from a free kick for a foul on the edge of the box, while Mount allowed the ball to run across his body inside a packed box before slotting a cool finish in the corner.
The game failed to fire in the second half even after the red card on 54 minutes, but eventually picked up pace after a flurry of substitutions.
One of the replacements, Borussia Dortmund's Jadon Sancho, combined with Arsenal's Bukayo Saka to feed Foden's debut goal and his second was matched either side by a barrage of shots that were either blocked or fizzed wide.
Iceland, whose manager Erik Hamren was already stepping down following Wednesday's game, had a couple of chances on the break in the first half but missed probably their best opportunity after the second-half sending off when captain Kari Arnason headed just wide.