The DNC will be held the week of July 25th, 2016. It's one week after Republicans meet in Cleveland.
The contract was signed with the city this morning, the Democrats said.
The party leaders said additional details on the convention structure, host committee, and staff will be made available in the coming weeks.
"The City of Philadelphia is excited and honored to be selected as the host city for the 2016 Democratic National Convention," Philadelphia Mayor Michael Nutter said in a statement.
"We're all delighted to make history again here in the City of Brotherly Love and Sisterly Affection," he continued.
Former Pennsylvania Gov. Ed Rendell said the convention is expected to cost $84 million. "We're confident that we can raise that," he said.
Organizers plan to hold it at the Wells Fargo Center, the home of the 76ers and Flyers, with events also at the city's convention center.
With Citizen's Bank Park and Lincoln Financial Field close by, it gives Democrats the option of staging its final night in an open air venue. Obama delivered his acceptance speech in 2008 at Denver's Invesco Field at Mile High.
For Democrats, the choice came down to whether to set the stage for the next nominee in a big city or in another closely contested state. Obama's campaign used the convention cities of Denver in 2008 and Charlotte, North Carolina, in 2012 to aggressively register new voters and recruit volunteers in states crucial to his political map.
Democrats bypassed New York, which is expected to be the headquarters of Clinton's campaign, and Columbus, the capital of one of the most contested states in recent presidential elections.
I am excited to announce that Philadelphia will host the 2016 Democratic National Convention!— Bob Brady (@RepBrady) February 12, 2015
Philadelphia's political leaders have been focused on trying to bring the party's nominating convention to the city.
Congressional leaders were lobbied by city and local leaders during meetings in Society Hill in late January.
Vice President Joe Biden was also in town that day, rallying the House Democratic Caucus.
Philadelphia boosters have said they were emphasizing the city's experience and space with the Wells Fargo Center and the recently expanded Philadelphia Convention Center.
The DNC will come less than a year after Philadelphia hosts another major event: The 2015 World Meeting of Families and a visit by Pope Francis.
Also notable: Philadelphia hosted the Republican National Convention in 2000.
Philadelphia previously held Democratic conventions in 1948 during Harry S. Truman's presidency and in 1936, when President Franklin D. Roosevelt was nominated for the second time.