Wangari Maathai is the first African woman to win the prize
She is the first African woman to be awarded the peace prize since it was created in 1901.
A surprised Mrs Maathai broke the news to reporters minutes before the official announcement.
The prize committee says Mrs Maathai, Kenya's Deputy Environment Minister, is an example for all Africans fighting for democracy and peace.
The delighted 64-year-old professor said the award was completely unexpected.
"This is extremely encouraging to the people of Africa and the African woman," she told the BBC.
"It is a recognition of the many efforts of African women, who continue to struggle despite all the problems they face."
In the late 1970s, Mrs Maathai led a campaign called the Green Belt Movement to plant tens of millions of trees across Africa to slow deforestation.
The movement grew to include projects to preserve biodiversity, educate people about their environment and promote the rights of women and girls.
Known as "The Tree Woman" in Kenya, Mrs Maathai celebrated by planting a Nandi flame tree in her home town of Nyeri, in the shadow of Mount Kenya.
Nobel Peace Laureate
She said she was delighted that the vital role of the environment had been recognised.
"The environment is very important in the aspects of peace because when we destroy our resources and our resources become scarce, we fight over that".
"I am working to make sure we don't only protect the environment, we also improve governance," she added.
The committee says she has combined science with social engagement and politics, and has worked both locally and internationally.
The professor was the 12th woman peace laureate since the first award was first made in 1901.
A spokesman for the Kenyan government said his country was honoured.
"This is a great moment in Kenyan history. To us this shows that what Wangari Maathai has been doing here has been recognised," Alfred Mutua said.
"We're very proud of her and she deserves all the credit."
Mrs Maathai beat a record 194 nominations, including former chief United Nations weapons inspector Hans Blix and the head of the UN energy watchdog, Mohamed ElBaradei, to win the prize.
Mrs Maathai is the second woman in a row to be awarded the peace prize, which last year went to Iranian lawyer Shirin Ebadi for her work for the rights of women and children in Iran.
The award, which includes 10 million Swedish kronor ($1.3m) is awarded in Oslo on 10 December each year.