The 110,000 US troops in Iraq will now focus on assisting local security forces
December was the first month in which no US troops were killed in combat in Iraq since the US-led invasion in 2003.
The commander of US forces in Iraq, Gen Ray Odierno, said it was a significant milestone that demonstrated how violence in the country had diminished.
2009 was also the least violent for US troops in Iraq, with 149 losing their lives, compared with 314 in 2008.
In total, 4,371 US military personnel have died since the invasion, according to the Iraq coalition casualty count.
On Friday, Gen Odierno attended a ceremony at Camp Victory on the outskirts of Baghdad marking the change of his command's name from Multinational Force-Iraq (MNF-I) to US Forces-Iraq (USF-I).
The all-US contingent of 110,000 troops will now focus on "advising and assisting" Iraqi security forces before combat forces are pulled out by 31 August and ahead of a complete withdrawal by 2011.
"In 2006, when I flew over Baghdad, I remember looking down on a city cloaked by darkness and gripped in fear," Gen Odierno said.
"Today, when I fly over Baghdad, I see hope, with bright lights and busy traffic."
Insurgent attacks have dropped from more than 200 a day two years ago to approximately 15 a day, according to Gen David Petraeus, the head of US Central Command, who also attended Friday's ceremony.
Between 94,939 and 103,588 civilians have been killed in attacks in Iraq since 2003, according to the monitoring group Iraq Body Count.