The London-based Foundation called the cleric “one of Africa’s great voices for justice, freedom, democracy and responsible, responsive government”.
He won the Nobel Peace Prize in 1984 for his campaign against apartheid.
The foundation also offers an annual $5m prize to a former African head of state for good governance.
The most recent recipient of that award was Cape Verde’s former President Pedro Verona Rodrigues Pires in 2011.
Winners must have been democratically elected and agreed to leave office.
In some years the prize has not been awarded because no-one has been deemed a worthy enough winner.
Critic of Israel
Archbishop Tutu, who will be 81 on Sunday, remains outspoken on international affairs.
The South African cleric has been a fierce critic of Israel’s treatment of the Palestinians as well as China’s treatment of Tibetans.
In August, he pulled out of a leadership summit in Johannesburg because he refused to share a platform with former UK Prime Minister Tony Blair.
Archbishop Tutu said Mr Blair and former US President George W Bush should be tried at the International Criminal Court in The Hague for lying about Iraq’s weapons of mass destruction in order to justify invading the country.
Mr Blair issued a strongly worded defence of his decisions, rejecting the archbishop’s allegations as “completely wrong as every single independent analysis of the evidence has shown”.
Mo Ibrahim was born in 1946 and is a British-Sudanese mobile communications entrepreneur and philanthropist who made billions from investing in Africa.
He argues that his foundation’s $5m prize – the world’s most valuable individual prize – is needed because many leaders of sub-Saharan African countries come from poor backgrounds and are tempted to hang on to power for fear that poverty is what awaits them when they give up the levers of power.
The inaugural prize was awarded in 2007 to Joaquim Chissano, Mozambique’s former president, who has since acted as a mediator in several African disputes.