The guitarist was speaking at a Q&A at Bush Hall in London chaired by Mojo editor Phil Alexander to mark the latest deluxe reissue of the album.
"I would say that we only made three landmark records," Townshend said. "Tommy, Who's Next and Quadrophenia.
"I've always felt that Quadrophenia was the last definitive Who album. I've always regarded it as a very ambitious album, but what got away was the story.
"Whenever we've played the songs live since, they feel new, so we wanted to bring the album, the actual recorded music, into the 21st century and have that feel new as well, which is why I spent the best part of the last year working on the remastering."
He added that he was "very proud" of the self-produced record, explaining: "I had complete control and it proved that when I have complete control I get it right.
"But to me, it felt to me like it was the end. The reason I've spent so much time working on this new edition is because it's an epochal record, the last great album by The Who."
Townshend also suggested that Who drummer Keith Moon may have been an inspiration behind Mike Myers's Austin Powers character.
When watching the hit movie with his partner, both noticed that Powers's mannerisms and outfits were very similar to Moon's towards the end of his life.
Townshend played a 20-minute acoustic set at the conference to an audience including his Who bandmate Roger Daltrey. Songs played included 'Drowned', 'Acid Queen', 'Corrina Corrina' and 'I'm One'.
> The Who to tour 'Quadrophenia' album in 2012
Watch Pete Townshend talk about the upcoming Quadrophenia box-set below: