Djokovic, who won this award in 2012 and '15, walked away with the 'Oscar of Sports' for a second successive time after clinching three Grand Slams - Australian, Wimbledon and US Open - last year. He was also the finalist in the French Open.
"I am very proud of it. It wouldn't have been possible without the great team that I have. I am grateful to the love and passion of tennis that brought me here. Sports has inspired me in so many different ways.
Soccer genius Lionel Messi, who had been nominated for a fifth time, once again lost out on the top award.
"It's probably a glitch we need to correct. Somebody like Messi ought to win this award. Maybe football being a team sport comes in the way," Laureus academy member Steve Waugh said before the ceremony.
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Williams was the overwhelming favourite in the women's category after securing a record 10th nomination and thanks to her three Grand Slams last season, the American notched up her third 'Sportswoman of the Year' Laureus trophy.
In the other categories, American golf star Jordan Spieth, who was also nominated in the 'Sportsman of the Year' category, won the 'Breakthrough of the Year' award. The 22-year-old Spieth is the reigning World No.1, who has already won the Masters and the US Open.
"For me it's unique. We're used to being recognised in the golfing community but this Award recognises us around the world to all of sport and it's something that's very difficult to put into words," Spieth, who did not attend the ceremony, said in video message.
Three-time Formula One world champion Nicki Lauda was presented the 'Laureus Lifetime Achievement' award.
"I dedicate this award to all the losers. Because it is after losing that I learnt the most," the 67-year-old Austrian said after being presented the trophy by reigning world champion Lewis Hamilton.
The Laureus Academy also paid tribute to the late Johan Cryuff, who passed away last month after battling cancer. Cryuff was chosen for the 'Laureus Spirit of Sport' award which was presented to his son Jordi by another Dutch legend Ruud Gullit and World Cup winning former Spanish defender Carlos Puyol.
The winners in the 2016 Laureus World Sports Awards
Laureus World Sportsman of the Year Award: Novak Djokovic (Serbia, Tennis).
Laureus World Sportswoman of the Year Award: Serena Williams (US, Tennis).
Laureus World Team of the Year Award: All Blacks (New Zealand, Rugby).
Laureus World Comeback of the Year Award: Dan Carter (New Zealand, Rugby).
Laureus World Sportsperson of the Year with a Disability: Daniel Dias (Brazil, swimming).
Laureus World Action Sportsperson of the Year: Jan Frodeno (Germany, Ironman Triathlon).