The discovery was made shortly after midday, Sussex Police confirmed.
Officers said Mr Johnston was found in a wooded area at Stoughton Down, near Chichester.
The 35-year-old Afghanistan war hero was declared dead at the scene. Officers added his next of kin had been informed.
Inspector Roy Hodder of the missing persons team said: ‘We would like to express our condolences to the family and friends of Daniel Johnston at this difficult time.
‘We would like to extend our thanks to family and friends of Daniel who volunteered to assist us in the search for him.’
It marks the end of a three-day ordeal for Mr Johnston’s loved ones.
He disappeared from his family home in Bognor Regis on Sunday morning, at around 9am.
The news sparked an immediate response from family, friends and fellow soldiers of his former regiment, the Princess of Wales’s Royal Regiment (PWRR).
More than 30 volunteers searched key areas across Sussex and Hampshire in their bid to find Mr Johnston.
On Monday evening, their search centred around the Queen Elizabeth Country Park on the outskirts of Petersfield.
As well as being backed by friends, family and veterans, the search was also supported by serving members of PWRR and Sussex Police.
Operating from a base at 4PWRR in Tudor Crescent, Cosham, the hunt continued yesterday.
Today’s latest search saw volunteers scouring the countryside around Stoughton, near Chichester, operating from an HQ at the Hare and Hounds pub.
But the search was stood down just after midday, The News understands, following the discovery.
People have since taken to Facebook to pay tribute to the Northern Ireland veteran.
A family member said they were ‘lost’ by the death of Mr Johnston and praised all those who helped in the search or shared various appeals.
Others on Facebook described the veteran as a ‘hero’ who will be ‘greatly missed’.
In the wake of Mr Johnston’s disappearance, an online fundraising site was set up to help fund the voluntary search – a campaign which raised almost £3,500.
The Princess of Wales’s Royal Regiment is the local army unit, recruits from across Hampshire, Sussex and Kent.
Mr Johnston is understood to have come from Bognor but was living in Hereford before his death.
He joined the army at the age of 16, eventually retiring from the service three years ago.