The Argentine Pope, elected in March, beat off competition from US whistleblower Edward Snowden, who came second, and third-place Edith Windsor for her gay rights campaigning in New York.
Named "The People's Pope" by Time, the pontiff is "poised to transform a place that measures change by the century".
Despite only being in the post a matter of months, Pope Francis has already "moved early to tame the mess that is the Vatican Bank" and last week set up a committee to tackle sex abuse, described by Time as "the church’s darkest existential problem".
Along with the practical steps taken by the pontiff in recent months, Pope Francis - who took his name from the patron saint of the poor - was praised for changing the approach towards vulnerable groups.
"In a matter of months, Francis has elevated the healing mission of the church...above the doctrinal police work so important to his recent predecessors," Time said, citing the often repeated teachings of former popes against divorce, abortion and gay people.
The former janitor and nightclub bouncer put Archbishop Konrad Krajewski in charge of helping poor people, telling him to sell his desk and get out onto the streets to help people. Earlier this month, the Vatican denied that Pope Francis himself accompanies Krajewski on his nightly walks - a denial that was described as a "necessary precaution" by Time.
The Pope has also invested time in speaking to Catholics outside the Vatican walls, such as during a trip to Brazil early on in his papacy to address young Catholics. Much has also been made of his phone calls to his followers, including an Italian teenager who had written a letter to the pontiff.
While Time was full of praise for its Person of the Year, not all of the magazine's most influential individuals of 2013 are known for having a positive impact.
In at number four in this year's ranking was Syrian President Bashar al-Assad, described as "the lethal tyrant" who violently crushed peaceful protest in the country and now presides over a state in civil war.
Time has not shied from controversial choices in naming its person of the year in the past. In 1938 Adolf Hitler was named Man of the Year, followed by Joseph Stalin in 1939 and 1942.
But peacemakers have also made the front page, such as in 1994 when F.W. De Klerk, former South African president, and Nelson Mandela were jointly celebrated for their fight against apartheid.
Pope Francis is the second pontiff to be named Time's most influential individual of the year, nearly 20 years after Pope John Paul II clinched the title in 1994.
Watch a video of why Time magazine chose Pope Francis as Person of the Year: