In place of the U.S. flag, the protesters tried to raise a black flag with the words "There is no God but Allah and Mohammad is his messenger," a Reuters reporter said.
Once the U.S. flag was hauled down, protesters tore it up, with some showing off small pieces to television cameras. Then others burned remains.
"This movie must be banned immediately and an apology should be made ... This is a disgrace," said 19-year-old, Ismail Mahmoud, a member of the so-called "ultras" soccer supporters who played a big role in the uprising that brought down Hosni Mubarak last year.
Many Muslims consider any depiction of the Prophet to be offensive.
Mahmoud called on President Mohamed Mursi, Egypt's first civilian president and an Islamist, to take action. Many others were supporters of Islamist groups.
About 20 people stood on top of the embassy wall in central Cairo, where about 2,000 protesters had gathered.
"There is no god but Allah, Mohammad is Allah's messenger. We will sacrifice ourselves for you, Allah's messenger," they chanted, with many waving religious flags.
A U.S. embassy official had no immediate comment on the protesters' actions but the embassy had put out a statement earlier on Tuesday condemning those who hurt the religious feelings of Muslims or followers of any other religions.
"We firmly reject the actions by those who abuse the universal right of free speech to hurt the religious beliefs of others," the U.S. embassy said in its statement.
One slogan scrawled on the walls of the embassy, a fortress-like structure that is near Tahrir Square where Egyptians revolted against Mubarak, said: "If your freedom of speech has no limits, may you accept our freedom of action."