Officials say the attack was "ineffective'' but the group has used similar weapons, against civilians and military targets in the past, with deadly results.
The DAESH terrorist group is suspected of shelling a US air base in northern Iraq with mustard gas. No American or Iraqi troops at the base were injured.
US officials allege, DAESH launched either an artillery shell or rocket into the Qayara air base near Mosul on Tuesday.
Initial tests by US troops at the site of the attack came up positive for sulfur mustard (mustard gas).
The chemical agent tested had "low purity" and was "poorly weaponised," US network CNN reported, citing an official. Another official told the network, it was "ineffective".
DAESH have been accused of using improvised chemical weapons in Iraq and Syria for years. The internationally banned compounds have seriously injured or killed civilians and soldiers alike.
Mustard gas is a powerful irritant which causes severe blistering and the lungs to fill with liquid. Researchers said the agent is easy to produce.
US troops were given special equipment to help protect themselves from various chemical weapons. But most civilians have little to no protection from agents like mustard, which can cause skin to melt off.