The pair won the award for their "efforts to end the use of sexual violence as a weapon of war," Nobel committee chairwoman Berit Reiss-Andersen said.
Nadia Murad speaks during her visit to the makeshift refugee camp at the northern Greek border point of Idomeni in 2016.
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"A more peaceful world can only be achieved if women and their fundamental rights and security are recognised and protected in war," she said.
The annual prize is given by the Nobel committee in Oslo to the individual or group who has done the most to advance the cause of world peace. The choice of winner is highly anticipated and at times has been controversial.
Winners found out news with everyone else
Ms Reiss-Andersen said the two winners have been powerful and effective advocates on ending sexual violence in war zones.
"One cannot single out one particular event this year. It has been a continuous development in efforts from the United Nations, efforts from brave individuals," she said.
"And as we stand here in 2018, Denis Mukwege and Nadia Murad carry the message in the most efficient way in the previous year."
She said attempts to phone the winners with the news ahead of the announcement had not been successful, meaning they were finding out at the same time as the rest of the world.
"We have not managed to get through on the phone. If they are watching this, my heartfelt congratulations," Ms Reiss-Andersen said.
'End the impunity'
She said the significance of the #MeToo could not be ignored, but it was not the reason for the committee's selection.
"#MeToo and war crimes are not quite the same thing. They do however have that in common that it is important to see the suffering of women, to see the abuses," she said.
"And to achieve that it is important that women leave the concept of shame and speak up."
She said it is hoped the award will "end the crime and end the impunity".
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Recognition of courage
Sixty-three year old Mukwege has treated tens of thousands of rape victims at Panzi hospital which he founded in 1999 in South Kivu. It is believed he has been on Nobel committee's shortlist for the prize for at least a decade.
Nicknamed "Doctor Miracle", he has been a passionate advocate on ending sexual violence in war zones as "a weapon of mass destruction."
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Nadia Murad was 21 when she was kidnapped by IS, enduring three months of captivity and rape before escaping and being a vocal advocate.
"Denis Mukwege and Nadia Murad have both put their personal security at risk by courageously combating war crimes and seeking justice for the victims," the Norwegian Nobel Committee said.
"They have thereby promoted the fraternity of nations through the application of principles of international law."
Messages of congratulations soon followed on social media.
331 nominations in 2018
Nominations were received from 216 individuals and 115 organisations. While the list of nominees is kept secret, some candidates are revealed by their nominators.
Bookmakers had placed bets on the winner being President Moon Jae-in of South Korea and the North Korean leader Kim Jong-un for their historic summit on September 18 aimed at denuclearisation.
Others guessed the other nominees included Pope Francis, the UN High Commissioner for Refugees and Edward Snowden.
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The number of nominees this year is the second highest on record, after the 2016 field of entries from 376 candidates.
Despite probing questions from journalists at the announcement of the winners, Ms Reiss-Andersen said the committee would not be breaking its tradition of keeping the nominee list secret.
"I cannot comment on who has been on the Committee's shortlist. We are instructed by the will of Alfred Nobel not to speak about our deliberations. We only communicate to you who has actually been found to be worthy of the prize each year."
The committee has a practice of keeping the list of nominees secret for at least 50 years to prevent lobbying.
Australian winners of 2017 Nobel Prize thankful for campaign boost
Australia's first Nobel Prize was awarded last year to the International Campaign to Abolish Nuclear Weapons (ICAN).
The movement started in Melbourne in 2007 before growing into an international network of 468 partner organisations advocating for an end to nuclear weapons.
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The Australian Director of ICAN, Gem Romuld, said the award has been a huge boost the organisation's advocacy campaign.
“The Nobel Peace Prize has greatly boosted our work promoting the nuclear weapon ban treaty, already signed by 69 countries and ratified by 19. While Australia has not yet signed on, our Nobel Prize has helped to open doors and galvanise the support of many people within parliament and among civil society," she said.
This year's Nobel Peace Prize was announced in Oslo at 11am local time on Friday. The Swedish Academy earlier this week announced the prizes for medicine, physics and chemistry.
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Winners join the ranks of other recognised world leaders, activists
The formal presentation of the prize is scheduled for December 10, and will include prize money of 10 million Swedish crowns (2 million Australian dollars).
Previous winners of the prize have included former South Korean President Kim Dae-jung, former US President Jimmy Carter, and former US President Barack Obama.
The European Union won the award in 2012 and the Organisation for the Prohibition of Chemical Weapons was awarded the prize in 2013.
The rights of children were the focus for 2014 and Malala Yousafzai shared the price with Kailash Satyarthi.
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