Greta Thunberg is a Swedish-born teen who has received global fame for her climate activism.
The announcement by Time came as she attended United Nations climate talks in Madrid.
Governments meeting at the talks are now under pressure to take more ambitious action to cut greenhouse gases, which continue to rise, to avoid the worst effects of climate change.
Time says it chose Thunberg for raising the alarm on climate change and "showing us all what it might look like when a new generation leads".
The shortlist for this year's defending champion was Nancy Pelosi, Donald Trump, the anonymous Central Intelligence Agency whistleblower who triggered the impeachment investigation against Trump and Facebook founder Mark Zuckerberg.
Time's other finalists were three people at the center of the impeachment proceedings against President Donald Trump: the president himself, House Speaker Nancy Pelosi, D-Calif., and the anonymous whistleblower whose complaint helped set the impeachment inquiry in motion.
Although Trump used the term "Man of the Year" in his tweet - enclosing the word "person" in brackets - the magazine has in fact been using the more neutral "Person of the Year" term since 1999. Past Persons of the Year include Adolf Hitler, Ayatollah Khomeini and Joseph Stalin.
He marvelled on "Today" at Thunberg's rapid rise from little known "solo protester" to beacon of change in the previous year.
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Famous teenage climate activist Greta Thunberg, at a United Nations summit, accused leaders, both political and business, of looking for loopholes to keep their own image intact in the fight against climate change.
That isolated action grew into a movement as Thunberg inspired students around the world to leave their classes in massive demonstrations.
Bloomberg has always been an advocate of worldwide efforts to curb global warming and until recently was the U.N.'s envoy for climate action.
"This is all wrong. I want you to listen to the scientists, and I want you to unite behind the science", she said. In 2017, it was "The Silence Breakers", the group of people who came forward to report sexual misconduct.
The 16-year-old began her climate action by camping out in front of Swedish Parliament in August 2018.
Elan Strait of the World Wildlife Fund told AFP that the world was "desperate to hear real American leadership on climate change". "Brilliant decision", tweeted activist and former vice president Al Gore.
"The first thing you do, Day One, is you say we're going back in", he said.
Greta Thunberg joined thousands of youngsters in Madrid last week to protest against the lack of progress in tackling climate change after making a almost three-week journey across the Atlantic Ocean from the United States by a catamaran. Clinton and her daughter, Chelsea Clinton, included the teenager in their new book highlighting "gutsy women".
He welcomed the emphasis Democratic Party presidential candidates have put on climate change in their campaigns so far and said if USA voters choose a new leader in November 2020, the country could rejoin the Paris Agreement in 30 days.