The young man from west Belfast was one of the so-called 'disappeared' who were abducted, murdered and secretly buried during the Troubles.
The Independent Commission for the Location of Victims' Remains (ICLVR) made a breakthrough in its search for his body last month at Ballynultagh, near the village of Lacken.
The remains were sent to a special DNA database in England that contains the genetic codes of all the families of the 'disappeared'.
The ICLVR said the Dublin Coroner confirmed a positive identification.
'Our thoughts and prayers are with the McIlhone family at this time and we hope that the confirmation that the remains of their brother have been recovered will bring them closure,' said a spokesman.
'The work of the Commission continues and we hope that we can also bring closure to other families of the Disappeared.'
The McIlhone family will now liaise with the Dublin Coroner to have the remains of their brother returned to them for burial.
The Northern Ireland Secretary Shaun Woodward said his thoughts are with the McIlhone family.
He said: 'The McIlhone family have endured great anguish and pain over the last 27 years and I sincerely hope that they can now have some closure and relief.'
Mr Woodward also praised the work of the Independent Commission for the Location of Victims Remains and the teams involved in the search.
He said anyone with any information, no matter how small or insignificant it may seem, must come forward to help end the suffering and agony of those families who have yet to recover their relatives' remains.
Sinn Féin president Gerry Adams said he extended his sympathy to the McIlhone family.
'The return of the remains of Danny McIlhone to his family in this Christmas season is a result of the great resilience of the family and their refusal to give up,' he said.
'I want to extend my sympathy and solidarity to Danny's brother and sisters and the wider McIlhone family circle.
'It is right and proper that they will now have a burial service and some closure hopefully in the time ahead.'
Mr Adams also called on anyone with information about the outstanding cases to bring it forward.
