Iodoacetic acid (IAA) and iodoform (IF) are unregulated iodinated disinfection byproducts (DBPs) found in drinking water. Their presence in the drinking water of China has not been documented. Recently, the carcinogenic potential of IAA and IF has been a concern because of their mutagenicity in bacteria and genotoxicity in mammalian cells. Therefore, we measured their concentrations in Shanghai drinking water and assessed their cytotoxicity, genotoxicity, and ability to transform NIH3T3 cells to tumorigenic lines. The concentrations of IAA and IF in Shanghai drinking water varied between summer and winter with maximum winter levels of 2.18 μg/L IAA and 0.86 μg/L IF. IAA with a lethal concentration 50 (LC50) of 2.77 μM exhibited more potent cytotoxicity in NIH3T3 cells than IF (LC50 = 83.37 μM). IAA, but not IF, induced a concentration-dependent DNA damage measured by γ-H2AX staining and increased tail moment in single-cell gel electrophoresis. Neither IAA nor IF increased micronucleus frequency. Prolonged exposure of NIH3T3 cells to IAA increased the frequencies of transformed cells with anchorage-independent growth and agglutination with concanavalin A. IAA-transformed cells formed aggressive fibrosarcomas after inoculation into Balb/c nude mice. This study demonstrated that IAA has a biological activity that is consistent with a carcinogen and human exposure should be of concern.