The Swedish Academy cited the American musician for "having created new poetic expressions within the great American song tradition."
Thursday's announcement completed the annual Nobel Prize announcements. Awards have earlier been awarded in the fields of medicine, physics, chemistry, peace and economics.
This year, the prizes are each worth eight million kronor $US930,000 ($A1.2 million).
In awarding the prize the Academy said: "Dylan has the status of an icon. His influence on contemporary music is profound."
More than 50 years on, Dylan is still writing songs and is often on tour.
"He is probably the greatest living poet," Swedish Academy member Per Wastberg said.
Sara Danius, Permanent Secretary of the Nobel Academy, told a news conference there was "great unity" in the panel's decision to give Dylan the prize.
His songs such as Blowin' in the Wind, Masters of War, A Hard Rain's a-Gonna Fall, The Times They Are a-Changin, Subterranean Homesick Blues and Like a Rolling Stone captured a spirit of rebellion, dissent and independence.
The Nobel awards are presented every year on December 10, the anniversary of the death of Swedish industrialist Alfred Nobel.
