Frans Strydom, 42, was killed, and his close friend, Deon Gouws, 43, was seriously wounded.
Four Iraqis also died in the car-bomb blast.
They and the other four injured South Africans worked for a company that provided security services to mainly American civilians in Iraq.
The group left for Iraq on January 8 and were deployed in Mosul in the north and Basra in the south.
The suicide bombing happened at the Shanine Hotel, where the Mosul group of South Africans had been staying.
This was the second time in a week that the group had come under attack. Last week, their Mosul hotel came under mortar attack. None of them were injured then.
Strydom and the other South Africans were employed by Erinys Iraq, said a spokesperson for Erinys Africa.
The company specialises in the protection of VIPs and oil pipelines.
A South African from Erinys Africa, who was until recently involved in supplying security services to Iraq, said he thought the bomb was a warning aimed at foreigners who used the company's services.
He said the company targeted was called SAS International.
Melinda Strydom of Sinoville, Pretoria, told how her husband had jumped at the chance of working in Iraq.
He said to not watch the TV news
"Frans was excited about going to Iraq. As a former policeman who had not been able to get work for years, he saw the contract as an opportunity. He wanted to improve our living conditions," she said.
"I can't believe it. Frans contacted me often and said I shouldn't watch the news as it would upset me if I saw the attacks in Iraq."
Strydom started his career as a task-force policeman. He spent a few years as a Koevoet member in Namibia and then joined the security police.
The news of Strydom's death came as a shock to his family.
His oldest daughter, Charlene, is due to have a baby in March. She said her father had been excited about becoming a grandfather.
Strydom had four children from two previous marriages. He also had six stepchildren.
Kobus Strydom, Frans's younger brother, said from Iraq on Wednesday he had always looked up to his brother. He said they had been estranged for some time, but had recently made up.
Kobus is in Baghdad to identify his brother's body and bring it home to South Africa.
Jumped at the chance
Gouws's fiancé, Bets Bouwer, of Waverley in Pretoria, said on Wednesday night that a man with a heavy English accent phoned her and said that Gouws had lost some of his colleagues.
"All I know is that he (Gouws) has lost a big toe," she said.
She was worried about Gouws and did not know exactly how seriously he had been injured.
