The prince confirmed the chosen city in a video message, which ended with the backing of pop star Kylie Minogue.
The Invictus Games are a Paralympic-style multi-sport event ranging from archery and wheelchair rugby to road cycling and swimming.
The event began in London in 2014 and visited Orlando, Florida, in May ahead of Toronto in 2017.
In the video message, Prince Harry said: “We have raised the bar higher with each successive games. I am happy to say the Invictus Games journey won’t end there.”
The prince said the competition had “shown us what can be achieved when wounded, injured and sick servicemen and women rediscover their fighting spirit through sport”.
He has been heavily involved in the organization of the event, after attending the Warrior Games, a similar gathering held in the US.
Prince Harry himself served 10 years in the Armed Forces and saw action in Afghanistan twice.
The video message, filmed at the Tourism Australia offices in Australia House, London, shows Prince Harry’s mobile phone ringing to the sound of the Kylie Minogue hit I Should Be So Lucky.
Prince Harry, surrounded by members of the Australian military, announces to cheers that the caller is Kylie.
He says: “Hi Kylie, good timing, the 2018 Invictus Games is coming to Sydney, can I guarantee the Aussies are going to bring it?”
In her own video message in reply, Kylie Minogue says: “Hey Prince Harry, listen – we’re stoked the Invictus Games is coming to Sydney, but you don’t need to tell the Aussies to bring it – it’s guaranteed, no worries.”
Prince Harry, who is patron of the Invictus Games Foundation which oversees the delivery of the tournament, said Sydney was chosen because it is an iconic location with a proud military heritage and a population that is “absolutely sports mad”.
The 2018 Invictus Games are set to take place in New South Wales from October18-29.
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