The Queen has bestowed Royal Borough status upon the London Borough of Greenwich, to take effect in the year of the Diamond Jubilee in 2012.
Business Secretary Lord Mandelson announced the honour in the House of Lords.
The status is in recognition of the close links between Greenwich and Royalty, since the Middle Ages.
There are currently three Royal Boroughs: Kensington and Chelsea, Kingston, and Windsor and Maidenhead.
All reflect long-standing Royal associations.
Lord Mandelson said: "This rare honour is to be bestowed in recognition of the historically close links forged between Greenwich and the Royal Family from the Middle Ages to the present day."
He said the honour was also in recognition of "the borough's global significance as the home of the Prime Meridian, Greenwich Mean Time, and the Unesco World Heritage Site".
The business secretary also announced plans to create an additional Bank Holiday in 2012, to mark the 60th anniversary of the Queen's accession to the throne.
Lord Mandelson told peers that the Queen would be only the second monarch after Queen Victoria to celebrate their Diamond Jubilee and it would be marked in fitting style.
Buckingham Palace welcomed Lord Mandelson's announcement but said it was too early to speculate on other events.
"Plans are at an early stage at the moment," a spokesman said.
Greenwich councillor Chris Roberts said: "The residents, businesses and the millions of visitors to Greenwich will share in our delight at this wonderful news."
"I would like to thank everyone who has backed the borough to receive this honour over many years - especially our many partners in the maritime Greenwich world heritage site," he added.