Dylan is primarily a musician, making him the first to receive the award. His lyrics, though, have long been considered poetry by fans, academics and other songwriters.
"I always thought working with him was like knowing Shakespeare," said Roger McGuinn, who recorded more than two dozen Dylan covers while he was the leader of the Byrds. "Mr Tambourine Man. The imagery of that. Yes, to dance beneath the diamond sky with one hand waving free/ Silhouetted by the sea, circled by the circus sands. It's beautiful and, really, poetry."
Dylan remained silent throughout the day about the award. His longtime friend, folk singer and artist Bob Neuwirth, didn't expect he would be tweeting out his excitement.
He's not a "braggart", said Neuwirth. "You know, he may not even acknowledge it."
But the Swedish Academy, which will give Dylan an 18-carat gold medal as well as a check for about US$925,000 ($1.3 million), did not hold back. Sara Danius, the academy's permanent secretary, praised Dylan during a televised news conference.
"Bob Dylan writes poetry for the ear," she said.
Not everyone was thrilled with the selection of Dylan, the first American to win the prize since Toni Morrison in 1993. Some complained about the award going to a musician instead of a prose writer.
Trainspotting author Irvine Welsh tweeted that he was a Dylan fan, but called the Nobel "an ill-conceived nostalgia award wrenched from the rancid prostates of senile, gibbering hippies".
But authors Rushdie, Joyce Carol Oates and John Scalzi disagreed.
So did T Bone Burnett, the producer and musician who toured with Dylan's Rolling Thunder Revue in the mid-seventies.
"You know, I've seen some people complain that Philip Roth was overlooked, and Philip Roth may be our greatest novelist since Faulkner, but novelists aren't all of literature," said Burnett. "And if Homer was literature then Dylan was certainly literature, and he elevated American literature to a place it never was before."
Poet Alan Shapiro, a former finalist for the National Book Award, said that "I don't know another poet now who can hold a candle to Dylan".
He remembers hearing Dylan for the first time in 1967 when he was 15, growing up in Brookline, Massachusetts, and kept a transistor radio under his pillow. Dylan actually introduced him to poets, whether Allen Ginsberg in the documentary Don't Look Back, or Dylan's referencing of Ezra Pound and TS Eliot in Desolation Row.
"I learned about them before I knew who they were, and then I looked them up," he remembers.
"For me, he opened up a world of poetry."
Country legend Billy Joe Shaver, two years older than Dylan, had a different response when he first listened. Shaver remembers buying a bunch of tapes in the 1970s and finding himself both overwhelmed and jealous.
It reached a point where Shaver wrapped the cassettes together with a rubber band, put them in a bag and threw them off a bridge into the Brazos River. That's in Texas, where he lives.
"I wish I hadn't after I had done it, but I said, he's writing shit I can't even start to get a hold of," said Shaver. "I said I better go back to driving trucks and working as a cowboy."
Dylan has always admired outlaw artists such as Shaver, who he referenced in a 2009 song, I Feel a Change Coming On. But he came from a relatively comfortable childhood, a Jewish kid from Minnesota who dropped out of college to head east, in 1961, to meet his ailing hero, Woody Guthrie, and play coffeehouses. In New York, Robert Zimmerman renamed himself Bob Dylan, signed with Columbia Records and began releasing the folk songs - Blowin' In the Wind, The Times They Are a-Changing and Masters of War - that would become the soundtrack for the protest movement. But rather than take the easy road, Dylan reinvented himself by going electric in the mid-sixties, alienating the peace-and-love crowd for a stretch.
This set a pattern for Dylan, whether converting to Christianity, reinventing his sound on 1997's Grammy-winning Time Out of Mind or putting out an album of Christmas covers in 2009. He is hard to predict and even harder to pin down. His 2004 book, Chronicles: Volume One, was hailed for its creativity but called "a pack of lies" by Dylan biographer Clinton Heylin due to the writer's propensity for altering or twisting the facts.
There was a general air of rejoicing yesterday as word spread of Dylan's award. Congratulatory tweets went out from, among others, President Barack Obama, author Stephen King, Hamilton's Lin-Manuel Miranda, and musicians Billy Bragg and Jarvis Cocker.
Peter Case, a musician deeply influenced by Dylan, was also pleased. When Case was growing up in Buffalo, his mother brought him a copy of Dylan's latest record, the 1965 album Bringing It All Back Home. "It opened me up to Shakespeare and the sound of language and to try to understand it," says Case. "It opened me up to deep compassion about people. And that whole second side of Bringing. He really kind of covers everything on the second side."
Case, now 62, has seen the music business change, from his major label debut in the 1980s to the struggle to make records in recent years. But through it all, he has kept listening to Dylan. And in the dark, after driving to his next gig - Brooklyn to Albany - he checked into his hotel and saw the news on his iPhone.
"It's just great to give a songwriter the Nobel Prize, but not just a songwriter," said Case. "It's Bob Dylan. He's just a giant. They had to open a special door for him."
Princeton University history professor Sean Wilentz, author of Bob Dylan in America and the unofficial historian of the musician's website, said he wasn't surprised by the Nobel.
"We're honouring a great literary figure of our time," he said. "I don't know that it's much different than any other great literary figure being honoured. He has taken the lyric form, which is an ancient form, as old as Homer, and raised it to an entirely new level, a level that stands with the highest literature that the West has produced. Period."
He also imagined Dylan would be grateful for the award, noting that he keeps his 2000 Oscar, awarded for Things Have Changed, on an amplifier during gigs.
McGuinn, who, after the Byrds dissolved, toured with Dylan and also played his 12-string Rickenbacker guitar on his 1973 hit Knockin' on Heaven's Door, said he had no idea what Dylan was thinking about the Nobel Prize.
"He's got a gig tonight in Las Vegas," said McGuinn. "He's probably thinking more about that."
