State television said the army hoisted the flag near the post office, the only government building in the portion of the city that had been held by rebels since the early days of the uprising that began there in 2011 with large protests.
Government forces backed by Russian air strikes have recovered swathes of Deraa province in the last three weeks, advancing unopposed by Assad's Western and regional foes into the strategically vital region near Jordan and Israeli occupation.
With critical help from Russia and Iran, Assad has now recovered most of Syria. Anti-Assad rebels still control a chunk of the northwest, and the northeast and a large chunk of the east are controlled by Kurdish-led militia.
As Assad pursues military victory, there appears to be little hope of a negotiated peace which Western governments say is needed to bring stability and encourage refugees to return.
Heavily outgunned, rebels in parts of Deraa province reached an agreement to surrender territory last week. In Deraa city, rebels are still in talks with Russian officers to secure safe passage out, rebel officials said.
A senior Russian military delegation entered the rebel-held area of the city on Thursday and began negotiations over its handover to state rule, rebel officials and a witness said.
A rebel official told Reuters negotiations were proceeding smoothly, with the Russians so far abiding by the terms of the deal, under which rebels would hand over weapons, and fighters who do not wish to live under state rule would be evacuated.
"Everyone is committed to the agreements," said rebel official Abu Jihad, adding rebels had already begun since late Wednesday handing over their heavy weapons.
Two armoured vehicles with senior Russian officers entered the devastated old city and began talks with commanders from the Free Syrian Army (FSA) on implementing the terms of the deal.
One rebel official said fighters hoped the Russians would keep a pledge to maintain a permanent Russian military police presence to protect civilians and former rebels who stay.