Hitler is said to have used the assumed name of Adolf Leipzig and was known to the 12,000 locals in Nossa Senhora do Livramento as "the Old German".
The man at the centre of the controversial claim is pictured, two years before his death in 1984, posing happily with his black girlfriend Cutinga.
Simoni Renee Guerreiro Dias, who wrote Hitler in Brazil - His Life and His Death, claims he was in the area hunting for buried treasure using a map given to him by friends withing the Vatican.
She insists that Hitler was using his lover Cutinga to hide his true identity as a vile Aryan supremacist.
Simoni, a Brazilian jew, refuses to accept that the Fuhrer shot himself in his Berlin bunker on April 30 1945. She is demanding that Leipzig's remains be exhumed and his DNA tested tested against living relatives of Hitler.
She told local journalists: "I just laughed at first, I thought it was a joke. Today I'm convinced it is true and Adolf Hitler didn't end up here by chance."
Simoni spent two years in the small town near the Bolivian border, which was founded during an 18th century gold rush, investigating her oddball theory.
She has linked the Fuhrer's alleged arrival in the area to a Vatican offer of ownership rights over buried Jesuit treasure in a cave near his adopted home.
And she claims that he chose the surname of Leipzig because it was the birthplace of Hitler's favourite composer, Bach.
According to Simoni, an unidentified Polish nun recognised an elderly man due to have an op at a hospital in Cuiaba in the early eighties as Hitler and demanded he leave - but was reprimanded by a superior who claimed he was there on Vatican orders.
Conspiracy theorists have long argued Hitler escaped from Germany and fled to south America, following fellow Nazis Adolf Eichmann and Josef Mengele.
This theory became the centre of a fresh row last year when two British authors were accused of plagiarism by a journalist in Argentina.
Gerrard Williams and Simon Dunstan claimed in a 2011 book Grey Wolf: The Escape of Adolf Hitler, that the Fuhrer fled with his mistress Eva Braun to Patagonia and had two daughters before dying in 1962 aged 73.
The book was later made into a documentary film. Argentine journalist accused the British pair of using his research to substantiate claims made in the book, a charge Williams and Dunstan denied.
The claims about Hitler's life in Argentina were ridiculed by historian Guy Walters, who described them as "2,000 per cent rubbish" when the book came out.
He added: "It's an absolute disgrace. There's no substance to it at all. It appeals to the deluded fantasies of conspiracy theorists and has no place whatsoever in historical research."
Academics in Brazil have also rubbished the theory Hitler lived and died in Nossa Senhora do Livramento.
Candido Moreira Rodrigues, a history professor at Mato Grosso's Federal University said: "There's nothing new in people who claim to be historians coming up with the most far-reaching theories about Hitler supposedly living in south America and subsequently dying in one of the countries in this region."
Tens of thousands of Nazis escaped after the war, including the notorious Adolf Eichmann and Josef Mengele.
Investigators probing Hitler's demise were hampered by the lack of any physical evidence for his death.
Fantasists were given added ammunition he didn't die in his Berlin bunker when 2009 DNA tests on skull fragments found near the bunker and believed to be his, turned out to belong to a woman.
Rochus Misch, a former bodyguard of Adolf Hitler who has been named as the last man to see the Fuhrer alive during his final hours in Germany, died last September aged 96.
Misch, who lived with Hitler and his mistress in their underground refuge as the allies closed in, told before his death he saw Hitler slumped with his head on the table after hearing a gunshot behind his closed door.