Mahrez, 25, who finished ahead of the 2015 winner Pierre-Emerick Aubameyang and Sadio Mané, is the third Algerian to receive the accolade after Lakhdar Belloumi in 1981 and Rabah Madjer in 1987.
Scorer of 17 goals and the architect of 11 others, Mahrez was one of the stars of last season. His exploits were endorsed last May by his fellow professionals who voted for him as the Premier League player of the year.
On Thursday night in Abuja, it was the turn of African national team coaches and technical directors to hail his talents. "It's a huge honour. I am happy and pleased. I thank all my teammates at Leicester and Algeria," said Mahrez as he received the award. "I dedicate this to my family and all those who support me every day."
Leicester - under boss Claudio Ranieri - caused a shock when, as 5,000-1 outsiders, they subdued the established powers of Chelsea, Arsenal, Manchester United, Tottenham Hotspur and Manchester City to win their first top flight title in more than 100 years of existence.
All three players who featured on the three man shortlist were also picked in the CAF XI.
Mamelodi Sundowns and Uganda goalkeeper Denis Onyango was picked as the African player of the year based in Africa. The 31-year-old was a key performer in the Sundowns' surge to the CAF Champions League title and Uganda's successful qualification for the Africa Cup of Nations after a 39 year absence.
Nigeria's Asisat Oshoala won her second African women's player of the year award on the back of her goals during Nigeria's successful defence of their continental crown in Cameroon in December. The Arsenal Ladies star won her first when she also helped the Super Falcons emerge African champions in 2014.
The 20 year-old Nigerians, Kelechi Iheanacho and Alex Iwobi, won the most promising talent and youth player of the year awards, respectively.