The transfer of the sprawling installation on the outskirts of the southern city of Nasiriyah is a final step ahead of a complete US withdrawal from Iraq in the coming days.
The Imam Ali Base, known to the US military as Camp Adder, housed 15,000 American troops at its peak and was officially signed over at a ceremony attended by Hussein al-Assadi, the Iraqi official responsible for base transfers.
"We proudly announce to the Iraqi people today the handover of the last American military base," Assadi said after the signing. "Today we are turning the last page on the occupation."
The base, which will now be used by Iraq`s fledgling air force, lies on the edge of the ancient city of Ur, the Biblical birthplace of Abraham.
Friday`s handover comes after US Defence Secretary Leon Panetta and US commanders took part in a subdued "casing of the colours" ceremony on Thursday near Baghdad airport, the first site US forces occupied in Baghdad during the 2003 invasion.
All that remains of the American military in Iraq are around 4,000 soldiers, down from a peak of nearly 170,000 troops and 505 bases across the country. After year-end, the US embassy will retain just 157 US soldiers, for training of Iraqi forces, and a group of marines to secure the diplomatic mission.
The withdrawal ends a war that left tens of thousands of Iraqis and nearly 4,500 American soldiers dead, many more wounded, and 1.75 million Iraqis displaced, after the US-led invasion unleashed brutal sectarian fighting.
It brings to a close nearly nine years of US military involvement in Iraq that began with a "shock and awe" campaign in 2003 to oust Saddam Hussein, which many in Washington believed would see US forces conclude their mission in Iraq within months.
But key decisions taken at the time have since been widely criticised as fuelling what became a bloody Sunni Arab insurgency, in particular dissolving the Iraqi army and purging the civil service of all members of Saddam`s Baath Party, including lower-ranking members.
The insurgency eventually sparked brutal communal bloodshed, particularly after the February 2006 bombing of a Shiite shrine in the predominantly Sunni city of Samarra by Al-Qaeda.
More than 100,000 Iraqis have been reported killed since the invasion, according to British NGO Iraq Body Count.
The bloodshed was only quelled when then-president George W. Bush ordered a "surge" of American troops to Iraq, and Sunni tribal militias sided with US forces against Al-Qaeda.
Attacks remain common, but violence in Iraq has declined significantly since its peak.
"After a lot of blood spilled by Iraqis and Americans, the mission of an Iraq that could govern itself has become real," Panetta said at the symbolic flag-lowering ceremony on Thursday, describing the pullout as "nothing short of miraculous".
"Iraq will be tested in the days ahead -- by terrorism and by those who would seek to divide it, by economic and social issues, by the demands of democracy itself," he added.
Iraq has a 900,000-strong security force that many believe, while capable of maintaining internal security, lacks the means to defend its borders, air space and territorial waters.
Some observers also fear a return to bloody sectarianism, doubt the strength of Iraq`s political structures, and feel that Prime Minister Nuri al-Maliki, who hails from the Shiite majority, has entrenched his power base to the detriment of the country`s minorities.
President Barack Obama honoured America`s "bleeding and building" in Iraq on Wednesday, hailing the "extraordinary achievement" of a war he once branded "dumb."