Meryl Streep, Sally Field, Sandra Bullock, Lily Tomlin and Cameron Diaz were among the actresses saluting the 76-year-old Oscar winner, who accepted the honour at Hollywood's Dolby Theatre, reported People magazine.
Accepting the award, Fonda said, "I'm so happy to add another woman's name to the list."
She also offered a bit of advice for the roomful of Hollywood celebrities.
"Ask questions, stay curious. It's much more important to be interested than to be interesting."
Michael Douglas, who received the honour in 2009, presented Fonda with the award. But first he said that while working with her on 1979's 'The China Syndrome', "I learned that not only is Jane an amazing actress, but she is the world's greatest multitasker.
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Fonda may have been following in the footsteps of her father, Henry Fonda, the sixth recipient of the AFI's award in 1978, but as Douglas put it, "Jane, you are true film royalty, not through birth, but through your talent."
A seven-time Academy Award nominee and winner of two Oscars for 1971's 'Klute' and 1979's 'Coming Home', Fonda, in a black-and-white Vera Wang gown, sat on the dais beside her partner, record producer Richard Perry, and alternately laughed, applauded and wiped away a tear or two as her life story played out in front of her.