Polling stations opened their doors at 8:00 a.m. (0500 GMT) and should close at 6:00 p.m. The final results should be announced within 72 hours.
The vote, expected to deliver a comfortable "yes" for independence, is not binding and is meant to give Massoud Barzani's KRG a mandate to negotiate secession of the oil producing region with Baghdad and neighbouring states.
"We have been waiting 100 years for this day," said Rizgar, standing in a queue of men waiting to cast a ballot in a school in Erbil, the KRG capital.
"We want to have a state, with God's help. Today is a celebration for all Kurds. God willing, we will say yes, yes to dear Kurdistan."
The voting is open to all registered residents, Kurds and non-Kurds, in the Kurdish-held areas in northern Iraq aged 18 or over, according to the referendum commission.
The commission estimates the number of eligible voters at 5.2 million, including those living abroad and who started casting electronic ballots two days ago.
Voters should tick yes or no on the ballot paper asking them just one question in Kurdish, Turkish, Arabic and Assyrian: "do you want the Kurdistan Region and Kurdistani areas outside the (Kurdistan) Region to become an independent country?"
The referendum is held despite intense international pressure on Barzani to call it off, amid fears that it would spark fresh conflicts with Baghdad and with Iraq's powerful neighbours, Iran and Turkey.
Iran declared a ban on direct flights to and from Kurdistan on Sunday, while Baghdad asked foreign to stop direct oil trading with Kurdistan and demanded that the KRG hands over control of its international airports and border posts with Iran, Turkey and Syria.
Turkey threatened retaliation but has kept the Kurdish oil export pipeline that crosses its territory open.
Tehran and Ankara fear the spread of separatism to their own Kurds. Iran also supports Shi'ite groups who have been ruling or holding key security and government positions in Iraq since the U.S.-led invasion which toppled Saddam Hussein in 2003.
The Iraqi Kurds say the vote acknowledges their crucial contribution in confronting Islamic State after it overwhelmed the Iraqi army in 2014 and seized control of a third of Iraq.
The Kurds are the largest ethnic group left stateless when Britain and France, the colonial powers which won World War One, carved up the Ottoman empire. The region's roughly 30 million ethnic Kurds were left scattered, mainly over four countries: Iraq, Iran, Turkey and Syria.
All of them suffered persecution and were often denied the right to speak their language. Those in Iraq were uprooted under Saddam Hussein's regime and suffered an attack using chemical weapons.
Syria is embroiled in a devastating civil war and its Kurds are pressing ahead with their own self-determination.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)