About 15 million eligible Iraqis have been called to cast ballots in 14 of 18 provinces at thousands of voting centres that opened at 7am (0400 GMT) and will close at 5pm (1400 GMT).
Security for the nation's first ballot since 2005 was extremely tight with Iraqi police and military deployed in strength as part of ramped-up measures aimed at preventing attacks.
In the Sunni Arab city of Tikrit, the hometown of executed dictator Saddam Hussein, four mortars exploded near several polling centres. Police told AFP the bombs had missed their mark and there were no casualties.
Although security has much improved in Iraq in recent months, Al-Qaeda and insurgents continue to mount attacks on citizens and security forces, especially in the mainly Sunni Arab areas of Diyala and northern Mosul provinces.
"The people are afraid to come to vote because of the terrorists, but I came to vote to show to the people that they don't have to be afraid," said Mushtar Jabar, a 32-year-old taxi driver in Baquba, capital of Diyala.
Rajaa Alaa, a housewife in Baghdad's Adhamiya said she had also decided to vote because security was better than before.
"I did not vote the last time because it was too dangerous but this time it is different," Alaa told AFP as she came out the polling station. "The whole family went together to vote because we want peace and I think that this election can bring peace."
Saturday's election is seen as a key test of Iraq's steadily improving stability and democratic political system as US President Barack Obama looks to redeploy American troops to Afghanistan.
"Obviously the president will watch the results, and believes that the provincial elections this weekend mark another significant milestone in Iraq's democratic development," White House spokesman Robert Gibbs told reporters on Friday.
Ahead of the voting authorities sealed Iraq's borders, shut down airports and imposed transport bans and night-time curfews as part of the massive security lockdown for the election.
State Department acting spokesman Robert Wood said in Washington observers from the US embassy in Baghdad as well as reconstruction teams composed of US civilians will help monitor the elections.
"Our hopes are that basically the Iraqis have a free, fair, transparent election, free of violence," Wood told reporters.
The United Nations and Iraq's Independent High Election Commission is organising the elections, with 800 international observers expected to oversee the balloting.
More than 14,400 candidates are standing for 440 seats in councils, which appoint the provincial governor and oversee finance and reconstruction, with a combined budget of $2.5 billion (Dh9.2 billion).
Sunni Arabs are expected to turn out in large numbers in a reversal of the January 2005 parliamentary elections they boycotted, then still angry about the US-led invasion to depose Sunni dictator Saddam Hussein.
The vote is also being seen as a quasi referendum on the leadership of Prime Minister Nuri al-Maliki.
The Shiite premier has emerged in recent months as stronger-than-expected leader, promoting a secular national agenda in response to the sectarian strife that tore Iraq apart in the wake of the 2003 invasion.
Although Maliki is not standing in the election, he has thrown his support behind a list of candidates that make up the State of Law Coalition.
The vote will not include the three autonomous Kurdish provinces – Arbil, Dohuk and Sulaimaniyah, all in the north.
Elections have been postponed in the oil-rich Kirkuk province, which the Kurds want to incorporate despite fierce opposition by the central government.