Qalatga Darband in northern Iraq, believed to have been founded in 331 BBC, was discovered by a team of Iraqi and British archaeologists led by experts from the British Museum.
The city was found with the help of drones and declassified satellite photographs taken for military purposes.
John MacGinnis, the archeologist leading the team in Iraq, told The Times: “It’s early days, but we think it would have been a bustling city on a road from Iraq to Iran.
“You can imagine people supplying wine to soldiers passing through.”
The site was first brought to the attention of archaeologists at the British Museum when the declassified CIA satellite photos from the 1960s were released.
The team then used drones equipped with a camera to discover the outlines of buildings hidden beneath fields of wheat and barley.
Dr MacGinnis said: “The drone yielded excellent information.
“We got coverage of all the site using the drone in the spring — analysing crop marks hasn’t been done at all in Mesopotamian archaeology.
“Where there are walls underground the wheat and barley don’t grow so well, so there are colour differences in the crop growth.”
The city was built on the likely route that Alexander the Great took when he was pursuing Darius III of Persia in 331 BC.
Archaeologists found Greek coins and statues of Greco-Roman deities on the site.
Staff from the British Museum have been training Iraqi heritage experts in a government-funded scheme set up to help Iraq deal with the aftermath of ISIS destruction of sites such as Nineveh, Nimrud and Hatra.
The Emergency Heritage Management Training Programme have trained workers in techniques such as rescue archeology, global positioning systems, satellite imagery and geophysics.