Creating an iframe with given HTML dynamically

Allthough your src = encodeURI should work, I would have gone a different way:

var iframe = document.createElement('iframe');
var html = '<body>Foo</body>';
document.body.appendChild(iframe);
iframe.contentWindow.document.open();
iframe.contentWindow.document.write(html);
iframe.contentWindow.document.close();

As this has no x-domain restraints and is completely done via the iframe handle, you may access and manipulate the contents of the frame later on. All you need to make sure of is, that the contents have been rendered, which will (depending on browser type) start during/after the .write command is issued - but not nescessarily done when close() is called.

A 100% compatible way of doing a callback could be this approach:

<html><body onload="parent.myCallbackFunc(this.window)"></body></html>

Iframes has the onload event, however. Here is an approach to access the inner html as DOM (js):

iframe.onload = function() {
   var div=iframe.contentWindow.document.getElementById('mydiv');
};

Setting the src of a newly created iframe in javascript does not trigger the HTML parser until the element is inserted into the document. The HTML is then updated and the HTML parser will be invoked and process the attribute as expected.

http://jsfiddle.net/9k9Pe/2/

var iframe = document.createElement('iframe');
var html = '<body>Foo</body>';
iframe.src = 'data:text/html;charset=utf-8,' + encodeURI(html);
document.body.appendChild(iframe);
console.log('iframe.contentWindow =', iframe.contentWindow);

Also this answer your question it's important to note that this approach has compatibility issues with some browsers, please see the answer of @mschr for a cross-browser solution.