Albu Kamal lies on the Syrian side of the border with Iraq, in the oil-rich eastern province of Deir Ezzor.
Entry to Albu Kamal follows a series of stunningly quick defeats for ISIS in the province as well as the terrorist's loss of their de facto capital Raqa further north.
"Army troops and allied forces broke through Daesh (ISIS) defences and entered Albu Kamal, waging fierce battles inside the town," state news agency SANA reported.
It said the fighting would pave the way for Syrian troops to regain full control of the border town, just hours after they and pro-regime fighters surrounded ISIS terrorists there.
Syrian regime forces, backed by intensive Russian air strikes, have steadily advanced on Albu Kamal from the south and west for weeks.
And Iraqi forces have closed in on the border area from the east, seizing the town of Al-Qaim from the terrorists last week.
"The advance towards Albu Kamal came after army troops and their allies met up with Iraqi forces at the border between the two countries," SANA said.
A source from militias allied to Damascus told AFP that fighters from Lebanon's pro-regime Hezbollah movement had advanced to the southern edges of Albu Kamal on Wednesday.
"Part of those units crossed into Iraq, with the help of Hashed al-Shaabi units, to circle around Albu Kamal and reach the northern side of the town," the source added.
The Hashed al-Shaabi paramilitary alliance has denied that its own forces entered Syria on Wednesday as part of the fight.
- 120,000 displaced -
ISIS overran vast swathes of oil-rich Deir Ezzor province in 2014 during a military sweep across Syria and Iraq, where it declared a self-styled "caliphate".
But the terrorist group has seen that territory shrink to a small pocket along the Euphrates River, with Albu Kamal as its final hub.
The Syrian Observatory for Human Rights said pro-regime fighters were battling ISIS in the town's southwest, backed by heavy bombardment.
"Pro-regime fighters have stormed the town and captured parts of it," the British-based monitoring group said.
"There's fierce artillery fire and air strikes, but it's unclear whether the bombing raids are by Iraqi or Syrian warplanes," said Observatory head Rami Abdel Rahman.
In recent weeks, an estimated 120,000 people have been displaced from Albu Kamal alone, said the United Nations' humanitarian affairs coordination office in Damascus.
Tens of thousands have been displaced by fighting to oust ISIS from the area, many living in desperate conditions in desert camps.
- String of losses -
The capture of Albu Kamal would cap a string of losses for ISIS, after Syrian forces with Russian air support took full control of Deir Ezzor on Friday, the last major city where the terrorists still had a presence.
Moscow is a close ally of Syria's President Bashar al-Assad and launched a military intervention in support of his government in September 2015.
With Russia's help, Assad's troops have recaptured swathes of territory from ISIS in central and eastern Syria, as well as from rebel groups across other parts of the country.
ISIS has also lost ground in Syria to a separate force backed by the US-led coalition, which helped oust ISIS from its de facto Syrian capital Raqa last month.
The coalition estimated recently that there were 1,500 terrorists in the Euphrates Valley border area.
More than 330,000 people have been killed in Syria since the conflict began in March 2011 with anti-government protests, before spiralling into a complex, multi-front war that drew in international forces and terrorists.