In 2007 the European online advertising market was worth €11.2bn (£8.88bn), up from €7.2bn in 2006.
This growth helped Europe close the gap on the US online ad market, which increased by only 26% during the same period to €14.5bn.
The research also found that two-thirds (65%), or €7.3bn, of European online ad budgets in 2007 were spent in the big three markets of the UK, Germany and France.
However, some of the smaller markets experienced very high growth rates -- Greece increased 91%, Spain rose 55% and Slovenia climbed 49%.
Alain Heureux, president of IAB Europe, said: "Despite a slowdown in advertising spend on some traditional media, the rise of online advertising in Europe continues unabated.
"Not only is the growth coming from some of the smaller markets which are seeing significant increases in their market value, but also from the more mature countries as companies move their advertising budgets online for the first time."
The sectors investing the most in online advertising in 2007 were Entertainment & Leisure, Telecoms and Finance & Insurance.
IAB Europe compiled the report, which was processed and analysed by PricewaterhouseCoopers.