The victory, sealed before lunch on the fourth day, gave holders England a 2-1 lead in the series, which will be completed with the fifth and final test in Sydney next week.
The England players embraced and pumped their fists in the air upon the final wicket as thunderous cheers rang out from England's "Barmy Army" of supporters who had sung joyously throughout the morning at the Melbourne Cricket Ground.
"We worked very hard to achieve this," said England captain Andrew Strauss. "To know that we're taking that urn home with us is very special. It's been a really top quality performance from the lads this week.
"We're very excited, it's special occasion the MCG game and to come out here and retain the Ashes is something that will live long in all our memories."
Image: England captain Andrew Strauss celebrates after the fourth Ashes cricket test against Australia at the MCG in Melbourne, Australia, Wednesday, Dec. 29, 2010. England won by an innings an 157 runs and retain the Ashes.