His songs such as "Blowin in the Wind," "Masters of War," "A Hard Rains 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.
"Dylan has the status of an icon. His influence on contemporary music is profound," the Swedish Academy said on Thursday, when it awarded the 8 million Swedish crown ($930,000) prize.
More than 50 years on, Dylan is still writing songs and is often on tour, Reuters reported.
"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 panels decision to give Dylan the prize.
Literature was the last of this years Nobel prizes to be awarded. The prize is named after dynamite inventor Alfred Nobel and has been awarded since 1901 for achievements in science, literature and peace in accordance with his will.