The Swedish Academy said it honored the 74-year-old author "for his cartography of structures of power and his trenchant images of the individual's resistance, revolt and defeat."
Vargas Llosa has written more than 30 novels, plays and essays, including "Conversation in the Cathedral" and "The Green House." In 1995, he was awarded the Cervantes Prize, the Spanish-speaking world's most distinguished literary honor.
His international breakthrough came with the 1960s novel "The Time of The Hero," which builds on his experiences from the Peruvian military academy Leoncio Prado. The book was considered controversial in his homeland and a thousand copies were burnt publicly by officers from the academy.
Vargas Llosa is the first South American winner of the prestigious 10 million kronor ($1.5 million) Nobel Prize in literature since it was awarded to Colombian writer Gabriel Garcia Marquez in 1982.
In the previous six years, the academy rewarded five Europeans and one Turk, sparking criticism that it was too euro-centric.
Born in Arequipa, Peru, Vargas Llosa grew up with his grandparents in Bolivia after his parents divorced, the academy said. The family moved back to Peru in 1946 and he later went to military school before studying literature and law in Lima and Madrid.
In 1959, he moved to Paris where he worked as a language teacher and as a journalist for Agence France-Presse and the national television service of France.
He has lectured and taught at a number of universities in the U.S., South America and Europe. He is teaching this semester at Princeton University in Princeton, N.J.
In 1990, he ran for the presidency but lost the election to Alberto Fujimori. In 1994 he was elected to the Spanish Academy, where he took his seat in 1996.