"It happened around 2pm (1100 GMT) on the road to al-Hilla. Two Blackwater employees were killed by an improvised explosive device," US embassy spokesman Bob Callahan on Sunday said.
The vehicle had just left Baghdad on Saturday when it was hit by the bomb, he added.
Blackwater, which provides security for US officials in Iraq, lost four employees in Falluja last March when a bomb exploded and their bodies were mutilated by an angry mob.
At least 209 foreign contractors have been killed in Iraq, according to a tally compiled by Iraq Coalition Casualty Count, an independent body that tracks fatalities of the US-led alliance in Iraq.
US soldier killed
Meanwhile, a US soldier was killed in a small-arms fire attack in northern Iraq, the US command said on Sunday.
The Task Force Freedom soldier was killed late on Saturday in Mosul, 360km northwest of Baghdad, the military said in a statement.
"The Soldiers of Task Force Freedom send their condolences to the family of the deceased," the statement said.
Fighters have been active in Mosul in recent months, launching near-daily attacks on US troops and their Iraqi allies in the city.
As of Saturday, at least 1513 members of the US military have died since the beginning of the Iraq war in March 2003, according to an Associated Press count.
At least 1153 died as a result of hostile action, according to the US Defence Department.