The top U.S. commander in Iraq, Gen. Raymond Odierno, was on hand to watch the final American combat team, the 4th Brigade of the 2nd Infantry Division, tender responsibilities to the 6th Iraqi Army Division.
President Barack Obama has ordered the current 64,000-strong U.S. presence to be down to 50,000 by September 1.
Six U.S. brigades will remain to provide support to Iraqi soldiers and police.
Saturday's ceremony, attended by Iraq's minister of defense, included a mock detention of insurgents and an ordnance disposal team blowing up a bomb.
The handover comes during a time of increased violence and political intransigence in the country, but Odierno said in an interview with CNN that the Iraqis have improved their capability.
"We're still very committed to Iraq," Odierno said. "We're still going to have 50,000 troops on the ground for a significant period of time to continue to help them [Iraqi forces] build that confidence."
Asked if he felt his mission was accomplished, Odierno replied, "I think we've come a long way, having been here through the very bad times, the progress that we made is encouraging, the fact that we're getting down to 50,000 -- how we've executed that, I think we've executed that extremely well. I think we're set up now to finish the mission here. But for me it's not final, there is still work that has to be done here by those that are to follow me."
The general also paid tribute to the sacrifice of U.S. soldiers and those who were killed or wounded.
"We call it our Army family," he said. "You know you have your biological family and then you have your Army family and we suffer through all this together."
Odierno also told CNN that people need to remember that the U.S. mission aims to improve the life of Iraqis.
"They were under this tyranny for a very, very, long time. I believe they want to move forward, they want a new life. They suffered an awful lot over the last seven years for a lot of different reasons," Odierno said. "I think we have to remember we owe them to try to get them a way forward for what they have endured."