The egg divides, is allowed to develop into an early-stage embryo and is then inserted in the woman's uterus where, if all goes well, it will become a baby.
Edwards began working on developing the process in the 1950s, and "his efforts were finally crowned by success on July 25, 1978, when the world's first 'test tube baby' was born," the prize jury said.
Since Louise Brown's birth, around four million people have been born through IVF.
"A new field of medicine has emerged, with Robert Edwards leading the process all the way from the fundamental discoveries to the current, successful IVF therapy," the jury said.
Edwards developed his laboratory findings "from experiment to practical medicine" with the help of British gynecologist Patrick Steptoe, who died in 1988.
Together they established the Bourn Hall Clinic in Cambridge, the world's first center for IVF therapy.
Today, 20 to 30 percent of eggs fertilized by IVF lead to the birth of a child.
"Long-term follow-up studies have shown that IVF children are as healthy as other children," the Nobel jury said.