Sent on in on place of Tim Cahill, Kennedy soared to head home Mark Bresciano's cross seven minutes from time at a sold out and rain-soaked Stadium Australia to see Australia grasp a 1-0 win to seal second spot in Asian zone Group B behind Japan.
The goal looked like it would never come as Iraq performed beyond expectations but Kennedy held his nerve to power his effort past keeper Noor Sabri to send the huge crowd into raptures.
It wasn't how the script was meant to play out but Australia lacked the guile and style to unlock Iraq until Kennedy, who arrived in the 77th minute, scored his 16th goal for his country in his 30th appearance.
"I'm proud of everybody. It's been a really hard campaign but we showed our mental strength," said skipper Lucas Neill as the celebrations roared around him with Australia on its way to a third successive World Cup.
"I'm sorry it wasn't pretty but we beat them. We've got to keep pushing ourselves. Let's look at the positives tonight - we're going to Brazil!"
Coach Holger Osieck added: "It was a very tough qualifying campaign but we made it happen over the last three games.
"I'm simply happy for the boys and the fans. It was a tricky game, they are tough to play."
Australia made all the early running against an experimental Iraq side out of contention for qualification and fielding four 21 year-olds and four teenagers.
Cahill spurned a decent chance to give the Socceroos an early lead when his strike was well stopped by goalkeeper Noor Sabri after Robbie Kruse had crafted the opening.
Twelve minutes later giant defender Sasa Ognenovski - always a threat in the air - barrelled into the Iraq penalty area to only to direct his header from a Lucas Neill cross over the bar.
It should have been 1-0 in the 34th-minute when a neat interchange between the impressive Tommy Oar and Matt McKay on the left saw the left-back swing the ball into the area where Noor dropped it and Cahill hooked his shot wide when a goal looked a distinct possibility.
As if daunted by the weight of expectation, the Socceroos lacked fluency and passes often missed their intended targets as their composure deserted them in the final third during a tense first half in which they couldn't turn territorial superiority into goals.
For long periods Iraq showed little respect for its higher-ranked opponent, as holding the vastly more experienced Socceroos at bay.
Iraq grew in stature as the game progressed, its neat and intricate interplay giving Australia some questions to answer as the home team battled to regain control of the match.
Osieck introduced Celtic's Tom Rogic on the hour for his sixth cap in place of Brett Holman, and his first touch saw him drive into the penalty box and his second another burst which broke down when he opted not to offload to the ever-menacing Oar.
Kruse did blast the ball in the net in the 64th minute to set the crowd alight on a sodden night but the effort was ruled out after referee Alireza Faghani spotted a foul by Ognenovski.
In an act of desperation, coach Holger Osieck replaced a disbelieving Cahill, with Kennedy making his first apppearance since late 2011. One minute later Osieck replaced Kruse with Archie Thopmson.
His decisions were vindicated.
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