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Singer Bob Dylan performs onstage during the 53rd Annual GRAMMY Awards held at Staples Center on February 13, 2011 in Los Angeles, California.
The American singer-songwriter received the accolade "for having created new poetic expressions within the great American song tradition," according to Sara Danils, permanent Secretary of the Swedish Academy which awards the Prize.
Dylan, who was born in 1941 in Minnesota as Robert Allen Zimmerman, has been writing and performing music for over 50 years. He is known for songs such as Blowing in the Wind and Like a Rolling Stone.
He released his debut album, Bob Dylan, in 1962 and has since had an impact on popular music worldwide.
His work has often revolved around social and political issues.
"He's a great poet in the English-speaking tradition, and a great sampler," Danils said. "For 55 years now he's been at it, re-inventening himself constantly."
The Prize has been awarded to 109 Laureates since 1901.
Previous winners of the prestigious award include Svetlana Alexievich, Patrick Modiano, Alice Monro and British novelist Doris Lessing in 2007.