"This year's prize is awarded to Nargis Mohammadi, who has fought against the oppression of women in Iran and for the rights and freedoms of all people," the Nobel Prize Committee said in a statement.
Mohammadi is one of Iran's most prominent human rights activists and has campaigned for improvements in women's rights and the abolition of the death penalty.
Mohammadi was sentenced to 12 years in Evin Prison in Tehran.
Mohammadi, who in 2003 served as vice president of the Centre for Human Rights Defenders, headed by Nobel Peace Prize winner Shirin Ebadi, is the 19th woman to win the award, which has been handed out for 122 years.
While it was announced that the award ceremony would be held on December 10 in Oslo, the capital of Norway, she also received a prize of approximately 1 million dollars.