A motion to set up a nine-member select committee into the saga passed the upper house 25 votes to 15 on Wednesday morning.
All members of the crossbench voted in favour of the motion.
The Victorian government sought to move an amendment to request the auditor-general probe the cancellation instead but it failed 19-21.
The auditor-general has already written to the opposition to confirm it is considering investigating the cancellation after an earlier referral.
Opposition upper house leader Georgie Crozier said a parliamentary inquiry was needed to restore trust in government and provide answers.
"It needs to be undertaken so we can get to the bottom of what went wrong," she said.
Premier Daniel Andrews last month announced Victoria would pull out of hosting the 2026 Games, citing a forecast rise in cost from $2.6 billion to between $6b and $7b.
The cost to Victorian taxpayers of terminating the Games contract remains a mystery.
State party leader Samantha Ratnam said the select committee was necessary because normal government-controlled committees were broken.
"This was a decision of such significance that it requires the scrutiny of parliament," she said.
She said the inquiry could run side by side with an auditor-general probe to add an extra layer of scrutiny.