The dog-sized plant-eater had a dome-shaped skull that may have been used to head-butt other dinosaurs.
University of Toronto researchers say the new species, revealed in the journal Nature Communications, fills in gaps in the dinosaur family tree.
They believe more small dinosaurs like Acrotholus audeti await discovery.
Bone-headed dinosaurs, or thick-headed lizards, are known scientifically as pachycephalosaurs.
They are a strange group of herbivorous dinosaurs which possessed a thick-boned dome on the top of their skulls.
The dome may have been used for decoration or to head-butt other dinosaurs in combat.
The new find, Acrotholus, dates back to 85 million years ago.
It was about the size of a large dog, weighed about 40kg (88lb), walked on two legs, and had a skull composed of solid bone over 10cm (4 inches) thick.
Dr David Evans of the Royal Ontario Museum and University of Toronto said the fossil provides a wealth of new information on the evolution of bone-headed dinosaurs.
He told BBC News: "What's interesting about Acrotholus is that it's the oldest known pachycephalosaur from North America, and it might be the oldest known pachycephalosaur in the world.
"So what Acrotholus does is it extends our knowledge of the anatomy of this group early in their evolution - and it's actually important for understanding the evolution of pachycephalosaurs in general."
Relatively little is known about the diversity of small dinosaurs weighing less than 100kg (220lb), as they are under represented in the fossil record.
There has been scientific debate over whether the fossil record is a true reflection of the diversity of small dinosaurs or whether their more delicate bones are less likely to have been preserved compared with their larger cousins.
The Canadian study predicts the latter, suggesting there may be more discoveries of small bodied dinosaur fossils in the future.
"We can predict that many new small dinosaur species like Acrotholus  are waiting to be discovered by researchers willing to sort through the many small bones that they pick up in the field," said co-researcher Dr Michael Ryan, curator of vertebrate palaeontology at the Cleveland Museum of Natural History.
Scientists have unveiled a new species of bone-headed dinosaur, which they say is the oldest in North America, and possibly the world.