The weekly news magazine said the award recognised protesters for "redefining people power" around the world.
Runner-up was Admiral William McRaven, commander of the US raid that killed Osama Bin Laden.
He was followed by Chinese dissident artist Ai Weiwei, whose secret detention this year by Beijing authorities sparked an international outcry.
Next was US Republican congressman Paul Ryan, architect of a conservative budget plan that sparked an ideological firestorm in the spring.
Britain's Duchess of Cambridge Kate Middleton, who married Prince William in April, rounded off the short-list.
Time editor Rick Stengel noted that protesters had been the force behind the largest news stories of the year.
"A year after a Tunisian fruit vendor set himself ablaze, dissent has spread across the Middle East, to Europe and the U.S., reshaping global politics and redefining people power," the magazine says.
It's remarkable how much the protest vanguards share. Everywhere they are disproportionately young, middle class and educated. Almost all the protests this year began as independent affairs, without much encouragement from or endorsement by existing political parties or opposition bigwigs. All over the world, the protesters of 2011 share a belief that their countries' political systems and economies have grown dysfunctional and corrupt — sham democracies rigged to favor the rich and powerful and prevent significant change.
Runner-ups: Adm. William McRaven, head of the Joint Special Operations Command; Chinese dissident artist Ai Weiwei; Rep. Paul Ryan, R-Wis.; and Kate Middleton, wife of Prince William.
Time's "Person of the Year" is the person or thing that the magazine feels has most influenced the culture and the news during the past year, for good or for ill. Last year the magazine picked Facebook founder Mark Zuckerberg.
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