More than 500 serving and former personnel from 17 nations will compete in the multi-sports competition in Sydney.
Harry, who launched the first such games in London in 2014, said Australia was chosen because it was an iconic city with a proud military heritage and sports-mad fans.
"It was an easy decision really - the 2018 Invictus Games are coming to Sydney," he said in a video statement.
Athletes, who have been wounded, injured or become ill in service, will compete in both individual and team sports including swimming, archery, cycling, track and field, and wheelchair rugby.
Australian Minister for Defense Marise Payne said hosting the games was an honour and a tribute to the unconquerable character of servicemen and women.
The games have been held in London and Orlando, and are due to be held in Toronto next year.
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