ISIS claimed responsibility on Twitter for the bombing in Khan Bani Saad, making it one of the single deadliest acts of terror the group has claimed.
The duplicitous plot was carried out on the eve of Eid al-Fitr -- a joyous Muslim holiday marking the end of Ramadan.
Throngs of shoppers crowded the open-air market when, according to two local police officials, a man in a truck pulled up and announced he was not only selling ice, but offering a discount because of the holiday.
Although the sun had gone down, the temperature was still around 35 degrees Celsius (95 degrees Fahrenheit), so the prospect of cheap ice drew hundreds to the truck, according to police.
With ice visible in the truck, the merchant appeared legitimate -- but police said hidden beneath was at least one ton of explosives.
Videos posted on social media showed scenes of devastation -- a large fire, and bodies and debris over a wide area. Several multistory buildings appeared to have been heavily damaged.
Daylight revealed a huge crater in the street where the vehicle had exploded.
By Saturday, the death toll had risen to 120, according to Muthana al Tamimi, governor of Diyala province.
But with 140 more wounded in the blast, that may go up.
The White House issued a statement Saturday condemning the attack, and reiterating its commitment "to bring an end to (ISIS') depravity."
"On behalf of the brave people of Diyala Province and all those Iraqis persecuted by (ISIS), the United States will continue to support the Government of Iraq and its security forces to degrade and ultimately destroy this terrorist organization," said National Security Council spokesman Ned Price.
Khan Bani Saad is a mostly Shiite town about 35 kilometers (21 miles) north of the Iraqi capital.