Propulsion is a critical subsystem of many spacecraft1,2,3,4. For efficient propellant usage, electric propulsion systems based on the electrostatic acceleration of ions formed during electron impact ionization of a gas are particularly attractive5,6. At present, xenon is used almost exclusively as an ionizable propellant for space propulsion2,3,4,5. However, xenon is rare, it must be stored under high pressure and commercial production is expensive7,8,9. Here we demonstrate a propulsion system that uses iodine propellant and we present in-orbit results of this new technology. Diatomic iodine is stored as a solid and sublimated at low temperatures. A plasma is then produced with a radio-frequency inductive antenna, and we show that the ionization efficiency is enhanced compared with xenon. Both atomic and molecular iodine ions are accelerated by high-voltage grids to generate thrust, and a highly collimated beam can be produced with substantial iodine dissociation. The propulsion system has been successfully operated in space onboard a small satellite with manoeuvres confirmed using satellite tracking data. We anticipate that these results will accelerate the adoption of alternative propellants within the space industry and demonstrate the potential of iodine for a wide range of space missions. For example, iodine enables substantial system miniaturization and simplification, which provides small satellites and satellite constellations with new capabilities for deployment, collision avoidance, end-of-life disposal and space exploration10,11,12,13,14.