The vote by the International Olympic Committee meeting saw Tokyo win the first round of voting with the other two cities polling the same number of votes.
A tie-break saw Madrid eliminated by four votes to set up a final round choice between Istanbul and Tokyo – with the latter emerging triumphant after polling 60 votes to Istanbul’s 36.
Madrid had been the favourites among many to host the Games, but fell at the first hurdle.
IOC President Jacques Rogge said: “Congratulations to the city of Tokyo on its election as host of the 2020 Olympic Games.
“Tokyo presented a very strong technical bid from the outset – and it needed to in competition with two such high-calibre bids from Istanbul and Madrid.”
It can be assumed scenes of ecstasy in Tokyo will be similar to that of London back in 2005, when the English capital was announced as the 30th Olympiad host’s.
Rio de Janeiro will host the next Olympic Games in less than a years time.
Tokyo will host the Games for the second time, the first coming way back in 1964 when Lynn Davies, Ann Packer and Mary Rand famously won gold for Great Britain.