The surprise find – which experts say will "rewrite Scotland's history books" – puts the earliest known civilisation in the area as far back as the Middle Bronze Age, or around 1500 to 1300BC.
Until now, archaeologists thought the Grassmarket was first used in the 14th century.
The discovery is the earliest piece of excavated material to be unearthed in the Capital, pre- dating material from around 850BC found during digs at Edinburgh Castle in the 1980s.
The breakthrough was made by archeologists around three metres below the surface of the Grassmarket during a revamp of the area by the city council.
The dark soil showed signs of manual labour and may have been a pit, trench or even a building, so a sample of the material was sent to Florida for radiocarbon dating.
City council archaeologist John Lawson said: "We didn't expect to find anything as significant as this. There was no pottery or other datable finds, and we'll never know what the material was, so the only way to find out its date was to get radiocarbon dating – we still expected it to be medieval.
"But we've now got the results back and it is amazing. This fills in the gaps in the history of Edinburgh, and means Grassmarket occupation is at least another 3000 years old."
Edinburgh is predominantly a medieval city, but Romans recorded a tribe, the Votadini, in the area in the first century AD.
Human habitation of Castlehill in earlier centuries was widely known, but there was no proof people also lived in the lower parts of what is now the Old Town.
The only earlier evidence of human existence in the city is on Arthur's Seat, where pieces of flint have been found from the early Bronze Age – possibly from 2000BC or earlier. The Grassmarket find was close to where The Beehive Inn now stands.
Two separate digs, at each end of the street, have also uncovered material dating back to the Dark Ages, or around 650-900AD, when Edinburgh was part of the Kingdom of Northumbria.
Other finds at the site include a broach thought to be from the medieval period, as well as burnt animal bones and cereal grains, and the street's 19th-century cobbled surface and drains.
City firm Headland Archaeology has been working on the site alongside contractors excavating the Grassmarket as part of the 5.1 million revamp.
Project supervisor James McMeekin said today: "It's very encouraging to learn there was something going on down here in the Bronze Age."
The team now plans to publish its findings and give lectures.
COLOURFUL HISTORY OF A TRADING HUB
THE Grassmarket took its name from Lothian farmers selling hay, corn and seed.
A market was held regularly in the area until 1911 – centuries after trading was first sanctioned by royal charter in 1477.
Until now, it was thought people only started using the area in the previous century.
The area became a thriving suburb outside the burgh of Edinburgh until it was brought into the fold when the Flodden Wall was built across its western end about 1547.
From early days, the Grassmarket was a major centre for dealing in horses and corn. It became a business centre, with printers, tanners, brewers, tobacconists, corn merchants and candlemakers trading. In the 16th century, inns such as the White Hart and the Black Bull opened and in 1560 the town council moved the corn exchange there.
It was also the scene of many hangings, and the famous Porteous riot. John Porteous, the brutal Captain of the Town Guard, was taken from prison and strung up by a mob in the Grassmarket.
Executions ceased there in 1784, when James Andrews became the last person to be hanged in the Grassmarket – for robbery in Hope Park.
But the area's colourful history was added to by the likes of Robert Burns, known to have frequented the area and to have stayed at the White Hart Inn in 1791.
In the 19th century, the area spiralled into squalor and poverty. But in the 20th century it was transformed into a tourist hotspot.