The cyclist kept the news a secret as he added another two gold victories at the Games, making the six-time champion the greatest British Olympian of all time.
In his updated autobiography Sir Chris, 36, told how his father, 67-year-old David, broke the news to him, saying it was "pretty awful for the whole family".
He said: "At 7pm in the evening, my dad called and said he had news for me. And then he told me, perfectly calmly, he had prostate cancer. It hits you like a sledgehammer."
Following tests, he said the news was more positive. He added: "The doctors seem pretty optimistic it's treatable."
During the Games, his father and mother Carol, 65, were in the crowds cheering him on. After witnessing his son taking the gold medal in the keirin event, David unfurled a sign reading "The Real McHoy".
He said at the time: "I am just so proud of him on every level. I am going to start crying. You bottle everything up and then it all comes out."
Nearly one in two men in Scotland will be affected by prostate disease at some stage of their lives.
Around 19,000 cases of prostate cancer are diagnosed every year in Scotland, proving fatal for around 800.
However, survival rates have improved significantly over the past 10 years.
The causes of the disease are not fully understood although age is a hugely significant factor.
More than half of all cases are in the over-70s, but it is rare in men under 50.
Just last month, Derek Hoy – David's 58-year-old brother and Sir Chris's uncle – died after a short battle with brain cancer.