Gretarsson started his career in Breiðablik and had a spell with Scottish club Glasgow Rangers, but returned to Iceland to play with Leiftur and then moved on to AEK Athens. In July 2000 he joined K.S.C. Lokeren, where he played until mid 2006, when he moved back to Iceland to play for Breiðablik again.
Grétarsson has been capped 72 times for Iceland. His older brother, Sigurður Grétarsson, was also an Iceland international.