Other artists hailing from South Australia including Cold Chisel and Sia have also had laneways named in their honour in the pass.
Kelly released his first album in 1981 and has produced some of Australia's most iconic songs, including How to Make Gravy and From Little Things Big Things Grow.
Paul Kelly Lane is in close proximity from Adelaide Town Hall, a venue which Kelly holds close this his heart, "from playing trumpet at school speech nights, attending concerts and, later on, doing my own shows".
"I'm honoured to be a part of this musical laneway project and I'm glad the lane is so close to the Adelaide Town Hall where I've had an association for over 50 years, from playing trumpet at school speech nights, attending concerts and, later on, doing my own shows."
- Paul Kelly
Adelaide Mayor Sandy Verschoor said Kelly's inclusion in the City of Music's Laneways Project was worthy recognition for a favoured artist.
"Like most Australians I have fond memories of listening to Paul Kelly songs, so I love that we can have the laneway named in his honour," she said.
"We have an incredible musical history, with so many great artists having close connections to this city, its live music venues and wonderful festivals."
The renaming of the laneway is a part of the City of Adelaide’ City of Music Laneway Naming Project where locals and visitors can learn more about iconic musicians and their relationship with key sites across the CBD.
For each laneway renamed, council is commissioning artworks by South Australian visual artists that respond to the identity and musical legacy of the musicians, and their impact on audiences and fans, locally and globally.
The Laneways project will next honour rock band The Angels.