Howard told parliament on Wednesday that Wood was in the care of the Australian authorities in Baghdad and was undergoing medical checks.
"I am delighted to inform the house the Australian hostage in Iraq, Douglas Wood, is safe from his captors," Howard said.
"I understand that he is well. He's undergoing medical checks at the present time," he added.
Howard did not detail how Wood was released, but an Iraqi government spokesman in Baghdad said Iraqi soldiers had helped in the operation that freed the Australian.
The prime minister said the Australian had "suffered immensely" during his captivity.
Australia sent an emergency response team to Baghdad after the 63-year-old US-based contractor was seized on 2 May by a rebel group calling itself the Shura Council of the Mujahidin of Iraq.
The group initially demanded Canberra pull its troops out of Iraq in exchange for Wood's life, but the demand was rejected and was then apparently dropped.
An Australian Muslim cleric had
made attempts to free Wood
There are about 900 Australian troops stationed in Iraq.
Howard said no ransom was paid to secure the captive's release and his abduction had not affected Australia's commitment to the US-led campaign in Iraq.
The Australian leader also praised the efforts of the Iraqi government of Prime Minister Ibrahim al-Jaafari in helping secure Wood's release.
"I hope very shortly to express my thanks for the efforts of his forces and may I record again our thanks to our American friends for their constant support and availability and cooperation," he said.
"It is a wonderful outcome for this man who suffered so much and it's a tribute to the work of our Iraqi and American friends that this has come about."
A spokesman for Wood's family, many of whom are based in the United States, said they were elated by the news.
"They haven't spoken to him yet but I understand that all of the family know in all parts of the world," Howard said.