The Isle of Fire stands in the midst of the ocean. Once the home of Exodus, it is now an almost lifeless island. The isle is host to the tests of the Principles, located in the Castle of Fire at the island's center. Otherwise, the island is devoid of anything interesting. The Isle of Fire is located almost directly south of Vesper.
The island was created by Exodus in Ultima III, to act as a fortress for the Castle of Fire. Exodus enslaved the Great Earth Serpent in order to protect the island. Surrounded by lava, the Isle of Fire was originally very hot, and no Human could survive long in it unless wearing Exotic Armour. Though there was a moongate in an isolated corner of the Isle, the Castle of Fire itself was only reachable by boat.
After the Stranger defeated Exodus, Lord British ordered the island to be used for as a testing ground for the Three Principles, creating three shrines: for Love, Truth and Courage. The shrines were protected by traps and perils, so the one on the Quest of the Avatar could prove himself worthy of reaching them and obtaining the powers they possessed. Before the quest was begun however, the island sank into the ocean, prior to Ultima IV. This was due to the Gargoyles' capture of Exodus' pysche and its fusion of it with their Shrine of Diligence. This apparently destabilized the island, leading to its sinking.
The island reappeared in Ultima VII thanks to Erethian, a mage who had devoted most of his life to the study of the island. Its resurfacing created earthquakes all throughout Britannia, and Lord British asked and the Avatar to investigate them. This eventually led the Avatar to the island, who visited it to prevent the return of Exodus, and successfully completed the tests of the Principles.