The city, part of the United Arab Emirates, fought off competition from Brazil, Turkey and Russia in its much-hyped bid to run the exhibition.
Fireworks popped around Dubai's Burj Khalifa, the world's tallest building, as the announcement was made thousands of kilometres away in Paris.
Dubai is now expected to spend billions of dollars preparing for the World Expo, according to industry estimates.
Dubai’s ruler Sheikh Mohammed Bin Rashed al-Maktoum promised that the event would “astonish” the world.
“Dubai #Expo2020 will breathe new life into the ancient role of the Middle East as a melting pot for cultures and creativity,” Sheikh Mohammed tweeted.
“We congratulate the nation, our president & all people in UAE on Dubai’s winning bid to host the greatest exhibition in the world.”
Foreign government officials also welcomed the news. “Congratulations to #Dubai for winning #Expo2020. We know you will do a fantastic job. #Mabruk!” tweeted the British Foreign Secretary William Hague.
Its victory was announced after a vote in Paris by member states of the International Exhibitions Bureau (BIE), which organizes the World Expo events.
Dubai received 47.24 percent of the total votes in the first round, in which Sao Paulo scored just 7.98 percent.
In the second round, Dubai got 52.73 percent of the vote followed by Russia (24.85 percent) and Izmir (21.82 percent).
Dubai and Ekaterinburg in Russia went through to the final round, with the former claiming the prize.
Earlier in the day, the four shortlisted cities gave their final presentations, with each given just 20 minutes to make their case.
Reem al-Hashemi, UAE Minister of State and managing director of Dubai’s Expo 2020 Bid Committee, pledged that the emirate would “give Expo 2020 the recognition it deserves”.
Dubai is set to spend almost $8.1 billion on infrastructure projects ahead of the Expo 2020.
Total investment including private-sector spending could exceed $15 billion, according to Mohammad Kamal, director of equity research at Arqaam Capital.
“Anywhere between $15bn to $17bn in overall spending will be sufficient to absorb the infrastructure needs,” Kamal told Al Arabiya News.
“We look at this from a combination of direct spending on the development of the site of the Expo and then installing the necessary infrastructure to service the Expo event, and thirdly aggregating the cost of installing all the hotel capacity that will absorb incoming tourists,” he added.
Shanghai was the last host city of the World Expo, while Milan is the venue for the 2015 event.
The first World Expo was held in 1851, and the event generally takes place every five years. The Expo is billed as the “equivalent of a world tour for their visitors”, with pavilions from across the globe on show.SHOW MORE