The liberation was announced by Anbar's chief police Major General Hadi al-Rzayej in a statement as Iraqi flags were raised over the town's buildings.
Iraqi security forces, local police, the counter-terrorism forces and allied tribesmen, who launched a large-scale military operation in the Anbar province on Monday, made their advances into the town early Wednesday, liberating its northern entrance.
The forces did not face any resistance from Daesh- militants, Brigadier General Abdul-Amir al-Khazraji said.
Iraqi forces commenced sweeping the town of explosives and defusing booby-traps left behind by the militant group.
Residents can return to their homes in Rutba once the sweep-up is completed, Iraqi army general Qassim al-Khazarji told The New Arab.
The town has been a key staging location for the militant group, allowing them to carry out operations across the province, particularly on Ramadi and Fallujah.
Daesh had overrun large areas north and west of Baghdad in June 2014, making further advances in Anbar and seizing its capital Ramadi in 2015.
Iraqi forces had waged operations to recapture ground from the militants, securing the Ramadi area earlier this year and retaking the town of Heet last month.