The 16-year-old is the youngest person to be chosen by the magazine in a tradition that started in 1927.
Speaking at a UN climate change summit in Madrid before the announcement, she urged world leaders to stop using "creative PR" to avoid real action.
The next decade would define the planet's future, she said.
Last year, the teenager started an environmental strike by missing lessons most Fridays to protest outside the Swedish parliament building. It sparked a worldwide movement that became popular with the hashtag #FridaysForFuture.