The bomber struck about 8.30pm as shoppers were making last-minute purchases before closing time, according to police Colonel Abdul-Karim Mohammed, who gave the casualty figures.
The director of the city hospital, Saleh Qado, said 20 people were killed and 70 injured and that US Army medics were providing emergency treatment at the scene.
Lieutenant-Colonel Ali Rasheed of Iraq's interior ministry, said the target may have been a police station within the market area of the majority Turkmen city.
In March, George Bush, the US president, praised American efforts to stabilise Tal Afar, saying he had "confidence in our strategy" and that success in the city "gives reason for hope for a free Iraq".
US and Iraqi forces launched an operation in September to clear the city of fighters - the second such attempt in a year.
However, by the end of September, a woman bomber slipped into a crowd of recruits, killing herself and six others as well as wounding 30.
Since then, several other bombers have blown themselves up in the city.
Tal Afar's population is a volatile mix of rival Turkmen, Kurds and Arabs, which complicates efforts to control the city.
The US military believes Tal Afar was used as a hub for smuggling weapons and fighters from Syria, which lies about 150km to the west.
Twenty-four others died elsewhere in Iraq on Tuesday.
The bodies of 17 Iraqis were found on Tuesday, police said, apparent victims of sectarian death squads.
Five were found in the capital; one in northern Iraq; eight, including a 10-year-old boy, in a river 50km south of Baghdad; and three interior ministry police commandos in Mahawil.
In other violence on Tuesday, according to police, four people were killed in drive-by shootings in Baghdad, including a Sunni cleric.
A roadside bomb killed one policeman and wounded two in the capital, and two security guards were killed by attackers at an oil refinery in Basra.