The 28-year-old finished ahead of Mali's Seydou Keita and Ghanaian Andre 'Dede' Ayew in polling by national coaches of the 53-member associations of the Confederation of African Football.
The full tally of votes was not immediately released by CAF, African soccer's governing body.
Toure thanked his family, including brother and City team mate Kolo, in a brief acceptance speech at the CAF awards in Ghana.
"This is a big step in my career, I'm very thrilled. To be the winner is fantastic."
Toure, the second Ivorian to land the award after twice-winner Didier Drogba of Chelsea, enjoyed a fine year for club and country.
He scored the winning goal in Manchester City's 1-0 victory over Stoke City in the FA Cup final and this season has impressed in his club's rise to the top of the Premier League.
Toure also helped Ivory Coast finish their African Nations Cup qualifying campaign with a 100 percent record.
The midfielder joined City from Barcelona for a fee of around 24 million pounds after the 2010 World Cup in South Africa.
Toure, who had a nomadic early career in Europe, was ever present for his country in 2011.
The Ivorians were the only side to win every game in the preliminaries for the 2012 finals and are among the favourites for next month's competition in Equatorial Guinea and Gabon.
Midfielder Keita, who won the Champions League and La Liga with Barcelona, was runner-up to Toure.
Ayew, whose father Abedi Pele won three African Footballer of the Year awards from 1991-93, finished third.
Toure's triumph capped a fine night for Ivory Coast who also scooped the referee of the year which went to Noumandiez Doue.
Tottenham youngster Souleymane Coulibaly won the Most Promising Talent. Esperance's Oussama Darragi was named the African-based Player of the Year.
Niger and Botswana's qualification for their debut Nations Cup next year was recognised in different categories. Niger's Harouna Doula was named coach of the year while Botswana took the Africa team of the Year.
CAF Champions League winners’ Esperance Sportive de Tunis was adjudged Club of the Year whilst Libya grabbed the Fair Play award.
Former internationals Mustapha Hadji of Morocco and Austin ‘Jay-Jay’Okocha of Nigeria were presented with Legends Awards in recognition of their contribution to the development of the game over the years.
Cameroon were named the female team of the year with the female African Player of the Year crown going to Nigeria's Perpetual Nkwocha.
This is the third time the award was being staged in Ghana after 2006 and 2009.
Reuteurs & CAF
Footballer of the Year : Yaya Toure (CIV/Manchester City)
Africa-based Footballer of the Year : Oussama Darragi (TUN/Esperance)
National team of the Year : Botswana
Club of the Year : Esperance (TUN)
Coach of the Year : Harouna Doula (NIG)
Most promising talent of the Year : Souleymane Coulibaly (CIV/Tottenham)
Referee of the Year : Noumandiez Doue (CIV)
Legends awards : Mustapha Hadji (MOR), Austin 'Jay Jay' Okocha (NGA)
Platinum Award : John Evans Atta Mills (President of Ghana)
Fair Play : Libya
Women’s national team of the Year : Cameroon
Women’s footballer of the Year : Perpetua Nkwocha (NGA)
Africa’s Finest XI
Goalkeeper: Samir Aboud (Libya)
Defenders: Harrison Afful (Ghana), Banana Yaya (Cameroon), Ayoub Elkhiqi (Morocco), Taye Taiwo (Nigeria)
Midfielder: Kevin Prince Boateng (Ghana), Yaya Toure (Cote d’Ivoire), Seydou Keita (Mali), Andre Ayew (Ghana)
Forward: Samuel Eto’o (Cameroon), Moussa Sow (Senegal)