In their citation, the prize committee commended her "exceptional and transformative leadership" in leading the recovery efforts, strengthening democratic institutions and improving human rights.
Former Liberian president Ellen Johnson Sirleaf has become the first woman to win a coveted $5m prize for African leadership.
The committee works independently to select the victor.
Throughout her two terms in office, she worked tirelessly on behalf of the people of Liberia.
"Such a journey can not be without some shortcomings, and today Liberia continues to face many challenges", he said.
Sirleaf is the fifth victor of the US$5 million prize since Mozambique's former President Joaquim Chissano was first awarded the prize in 2007.
The prize committee admitted that Liberia was the only country on the continent that showed improvement in every category and sub-category of the Ibrahim Index of African Governance.
Ellen Johnson Sirleaf awarded $5m Ibrahim African leadership prize
Johnson-Sirleaf left office previous year, and was replaced by President George Weah, a former footballer.
Sirleaf is a 2011 Nobel Peace Prize victor and Africa's first elected woman president.
Named for its creator, the British-Sudanese BT engineer turned telecommunications billionaire Mo Ibrahim, the prize carries an award of $5m paid out over 10 years and then $200,000 each year for the rest of the winner's life.
The prize committee admitted that while Ms Sirleaf was accused of tolerating corruption, she had shown exceptional leadership in hard circumstances.
Mrs Sirleaf, who stepped down last month, became Africa's first elected female president in 2006. Pedro Pires of Cape Verde won in 2011, and Hifikipunye Pohamba of Namibia took the award in 2014.
"The candidates for the Ibrahim Prize are all former African executive heads of state or government who have left office during the last three calendar years, having been democratically elected and served their constitutionally mandated term", the Mo Ibrahim website indicates.