Peter Englund, the Nobel Academy's permanent secretary, announced his name at a short ceremony in Stockholm.
"Modiano is a well-known name in France but not anywhere else. He writes children's books, movie scripts but mainly novels. His themes are memory, identity and time," Englund told the gathering.
Modiano, who will receive eight million kronor ($1.1 million) with this honour, is the 107th winner of the Nobel literature prize.
He published his first novel titled "La Place de l'Etoile" in 1968.
His novel "Missing Person" - the best as announced by Englund - won the French literary accolade Prix Goncourt in 1978. The plot revolves around a detective who loses his memory and then tries to recover it.
In 2012, Modiano won the Austrian State Prize for European Literature.
His other awards include the Prix Goncourt in 1978 for his novel "Rue des boutiques obscures" and the Grand prix du roman de l'Academie francaise in 1972 for his work "Les Boulevards de ceinture".
Previous winners of Literature Nobel include literary giants such as Rudyard Kipling, Toni Morrison and Ernest Hemingway.
Modiano was born in a west Paris suburb in July 1945 - two months after the Second World war ended in Europ .
Now living in Paris, he rarely interacts with media.