'Sense of anxiety'
Barack Obama, the US president, has called the troop withdrawal an important milestone, but warned violence is likely to continue.
"Make no mistake, there will be difficult days ahead," he said.
"We know that the violence in Iraq will continue. We see that already in the senseless bombing in Kirkuk earlier today.
"Iraq's future is in the hands of its own people and Iraq's leaders must now make some hard choices necessary to resolve key political questions ... [and] provide security for their towns and their cities."
Al Jazeera's Hoda-Abdel Hamid, reporting from Iraq, said: "[Despite] the impression of a withdrawal and a return to sovereignty ... there is a sense of anxiety in the air.
"Security measures are tighter and some streets sealed off.
"People here are extremely nervous ... they're trying to figure out if more roadside bombs are planted."
But Mahmoud Almusafir, a former Iraqi diplomat, told Al Jazeera: "For me and all the Iraqis, this is the day the Americans confessed that they can't [do] more in Iraq, and they can't control the cities, they can't control Iraq.
"This is ... [US] face-saving, telling the people of the world that we are not killing Iraqis anymore and letting the government have a proxy war on their behalf."
Asked whether he feared Iraqis will start killing other Iraqis after the withdrawal, Almusafir said: "This is American propaganda. They try to sell it to the world and unfortunately, the world bought it.
"There are no Iraqis killing Iraqis. Iraqis - Sunnis, Shias ... have lived together for hundreds of years.
"The problem is American propaganda started at the beginning to control the city and this divided everyone ... unfortunately the politicians implemented this policy - the politicians who came with the Americans in 2003."
Fireworks continued to light up the sky over Baghdad into the early hours on Tuesday, after thousands of Iraqis, an unprecedented number for a public post-war event, attended a party in a park where singers performed patriotic songs.
"All of us are happy - Shias, Sunnis and Kurds on this day ... the Americans harmed and insulted us too much," Waleed al-Bahadili, an Iraqi attending the celebrations, told the AFP news agency.
Many Iraqis ignored an appeal by Tariq al-Hashemi, the Iraqi vice-president, to stay away from crowded places during the US pullback, after more than 250 people were killed in bombings over the past 10 days.
Despite the formal pullback, some US troops will remain in cities to train and advise Iraqi forces. US forces are also ready to return if asked.
The US military is to continue combat operations in rural areas and near the border with the permission of the Iraqi government.
The US has not said how many troops will be in the cities in advisory roles, but the vast majority of the more than 130,000 US troops forces remaining in the country will be in large bases scattered outside cities.