Munro is the first Canadian to receive the award after Saul Bellow and the 13th female literature laureate and will receive $ 1.2 million for her work.
She is often termed as the modern Chekhov for her warmth, compassion and her insight through her words.
She is the daughter of a fox farmer and a teacher and has a major in journalism.
Munro to receive .2 million in a formal ceremony
The academy said that her stories are often set in small town environments, where the struggle for a socially acceptable existence often results in strained relationships and moral conflicts.
She was tipped to be a favourite days before the announcement. She will receive the award at a formal ceremony in Stockholm on December 10.