The 16-year-old is the youngest person to be chosen by the magazine in a tradition that started in 1927.
TIME announced the news on Wednesday afternoon, at a time when Thunberg was telling a UN climate change summit in Madrid that the next decade would define the planet's future.
She urged world leaders to stop using "creative PR" to avoid real action.
The clock was ticking as the decade comes to a close, she said. "In just three weeks we will enter a new decade, a decade that will define our future. Right now, we are desperate for any sign of hope."
TIME editor-in-chief Edward Felsenthal hailed Thunberg as "the biggest voice on the biggest issue facing the planet this year, coming from essentially nowhere to lead a worldwide movement".
This isn't the first time Thunberg has claimed an award on the back of her hard work this year.
Back in September, the Swedish climate activist was one of four people named as the winners of a Right Livelihood Award, also known as the Alternative Nobel Prize.
Created in 1980, the annual Right Livelihood Award is an international award to "honour and support those offering practical and exemplary answers to the most urgent challenges facing us today."
The prize was established by German-Swedish philanthropist Jakob von Uexkull and is presented annually in early December.
Thunberg's win, according to judges, was due to the manner in which she “personifies the notion that everyone has the power to create change. Her example has inspired and empowered people from all walks of life to demand political action”.
She has also been nominated for the Nobel Peace Prize.