Frank-Walter Steinmeier, the German foreign minister, did not say how she was freed.
"I am glad to be able to announce to you ... that Mrs Susanne Osthoff is no longer in the hands of the kidnappers," he said on Sunday.
"As of today, she is in the safety of the German Embassy in Baghdad. Our impression after talking to her is that she is in good physical condition."
The kidnappers said they would release Shalid al-Shimani, her Iraqi driver, as well, and diplomats later said that he was no longer being held.
The foreign minister left the news conference without taking questions.
Osthoff's brother, Robert Osthoff, had earlier told German n-tv television station: "My sister is free."
Osthoff (3rd R) sits with her
driver in her captors' video
Osthoff, 43, a convert to Islam, has been living in Iraq for 10 years. She is married to an Iraqi who belongs to Shammar tribe, the largest Sunni tribe in central and northern Iraq.
She disappeared on 25 November in northern Iraq along al-Shimani.
Days later, the two were shown in a videotape blindfolded and sitting on a floor, with captors, one armed with a rocket-propelled grenade, standing beside them.
The captors threatened to kill the hostages unless Germany stops dealing with the Iraqi government.
The German authorities have not identified her captors.