Water‐saturated, hydrothermally altered rocks reduce the strength of volcanic edifices and increase the potential for sector collapses and far‐traveled mass flows of unconsolidated debris. Iliamna Volcano is an andesitic stratovolcano located on the western side of the Cook Inlet, ∼225 km southwest of Anchorage and is a source of repeated avalanches. The widespread snow and ice cover on Iliamna Volcano make surface alteration difficult to identify. However, intense hydrothermal alteration significantly reduces both the electrical resistivity and magnetization of volcanic rock and can therefore be identified with airborne geophysical measurements. We use airborne electromagnetic and magnetic data to map snow and ice thickness and identify underlying alteration zones at Iliamna Volcano, Alaska. Resistivities were calculated to an average depth of >300 m, and a 3‐D susceptibility model extends from the surface to the base of the volcano, about 3,000 m below the summit. Geophysical models image low resistivity (<30 ohm‐m) and low susceptibilities near the summit of Iliamna and below its older vent complex, with the low susceptibilities indicating alteration up to ∼800 m in thickness. Thin conductors (∼50–100 m thick) on the edifice slopes coincide with recorded locations of repeated debris avalanches over the past ∼60 years and are attributed to saturated zones at high elevation. Three‐dimensional slope stability models based upon the geophysically constrained alteration distribution suggest the edifice of Iliamna is unstable and could lead to collapse scars ∼400 m deep near the current and former vent complexes.