The body of Jim Kitterman, a 60-year-old Texan, who was reportedly bound, blindfolded and stabbed, was found dead in his car last month in the protected Green Zone where his small construction company was based.
Iraq regained control of the Green Zone on January 1 under a US-Iraqi security agreement.
The agreement allows US troops to be tried in Iraqi courts in cases of serious, premeditated crimes committed while soldiers were off-base and off-duty.
Private contractors, previously immune to prosecution in Iraq, are now wholly bound by Iraqi laws.
The deal means Iraqis are now responsible for searching vehicles and checking identity papers at entry points to the Green Zone.
Although Americans and others have been killed in rocket or mortar attacks in the Green Zone, Kitterman was believed to be the first American murdered there since the protected area was established after the US invasion of Iraq in April 2003.
Heavily armed Western contractors are common in Iraq, especially in the Green Zone.
Many provide security for the US military in Iraq while others protect private firms.
Under the security pact, US combat troops are scheduled to withdraw from Iraqi towns and cities by the end of the month, while all US troops must leave the country by the end of 2011.