The Kurdish People's Protection Units (YPG) took up positions on the Syrian side of the border post, an AFP photographer said, after they advanced on Tal Abyad from east and west and cut the road south to Raqa, the IS de facto capital.
"Tal Abyad is completely surrounded," said YPG commander Hussein Khojer.
"There is nowhere Daesh can escape to," he said, using the Arabic acronym for IS.
Sherfan Darwish, a spokesman for the Burkan al-Furat rebel group fighting alongside the YPG, said the anti-IS alliance was on the eastern and southern outskirts of Tal Abyad.
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The advance is a blow to the jihadist group, which is battling to hold onto Tal Abyad and preserve its main supply line between Raqa and the Turkish border.
Kurdish fighters and Syrian rebels began their main advance on Tal Abyad on June 11, backed by air strikes from the US-led coalition fighting IS.
The clashes have prompted thousands of civilians to flee, with some 20,000 crossing into Turkey since last week, including at least 3,000 for the second consecutive day.
Parents passed screaming children over one section of trampled fencing, and a mother grasped her baby by one arm, a pacifier dangling from its neck.
Tal Abyad lies some 85 kilometres (50 miles) north of Raqa, and analysts say it serves as a primary conduit for incoming weapons and fighters, as well as for outgoing black market oil.
"It has been an IS stronghold for a while now, and it has been described as the gateway to Raqa," said Charlie Winter, a researcher on jihadism at the London-based Quilliam Foundation.
Tal Abyad is also just 70 kilometres (40 miles) east of the Kurdish-majority town of Kobane, where Kurdish forces battled for months before expelling invading IS forces in January.