It's topped the Times Higher Education magazine for the fourth year in a row.
The UK is home to the best university in the world, but the nation is facing intense competition from overseas institutions.
Overall, the UK has 28 institutions in the top 200, down from 29 last year.
Of these, almost two-thirds (18 universities) have fallen by at least one place.
The annual list rates more than 1,300 universities in 92 countries on five areas: teaching, research, citations, industry income and international outlook.
While Oxford was named the best-performing university globally, Cambridge University takes third place in the list.
This is down one place on last year, when it was second.
Taking second spot this year was the California Institute of Technology, in the United States.
Rounding out the latest top five are two other US institutions - Stanford University and the Massachusetts Institute of Technology (MIT).
One other UK institution makes the top 10 - Imperial College London, which takes tenth place this year, compared to ninth last year.
Also making it into the top 50 are: University College London (15th), the London School of Economics and Political Science (joint 27th), Edinburgh University (30th), and King's College London (joint 36th).
Phil Baty, THE chief knowledge officer, said: "Historically the UK has punched well above its weight with regards to higher education, being home to a huge number of top-quality institutions.
"In recent years however, increasingly strong competition from Asian institutions has begun to squeeze the UK out of its traditional top spots.
"Last year, the UK was displaced as the second most-represented country overall by Japan and the Asian nation further extends its lead this year.
"Meanwhile, the majority of UK universities in the top 200 have declined - although the country is still home to the best university in the world, the University of Oxford."
He continued: "British universities have long been able to attract the most talented academics and students from across the world, but there are signs that this is becoming more difficult ahead of Brexit.
"If the UK starts to withdraw from the international stage, its position in the upper echelons of the rankings will suffer."
Louise Richardson, vice-chancellor of Oxford University, said: "While UK universities face great uncertainty around Brexit and funding, these results demonstrate that we are well prepared to meet these challenges.
"Oxford's success is in large part due to our research collaborations with other excellent universities around the world and we remain determined both to deepen and to expand these partnerships, whatever Brexit brings."