A bomb exploded at the cafe and a suicide bomber detonated an explosives-rigged vehicle after people gathered at the scene, a police captain and an army colonel said.
There was no immediate claim of responsibility for the attack, but suicide bombings are a tactic frequently used by Sunni militants in Iraq, including the Islamic State jihadist group.
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A top Iraqi army officer declared that Diyala province, where Muqdadiyah is located, had been "liberated" from IS in late January 2015, but that has not brought an end to attacks by the jihadists.
IS overran large areas north and west of Baghdad in June 2014, but Iraqi forces backed by US-led air strikes have since dealt the jihadists significant defeats.
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