It marks the first time the honour has been given to a composer in 44 years.
“John Williams has written the soundtrack to our lives,” said Howard Stringer, chairman of the AFI board of trustees.
Five-time Oscar winner Williams, whose soundtracks include Star Wars, Jaws and ET, will receive the award at a ceremony on 9 June, 2016.
“Note by note, through chord and chorus, his genius for marrying music with movies has elevated the art form to symphonic levels and inspired generations of audiences to be enriched by the magic of the movies,” said Stringer, in a statement.
“AFI is proud to present him with its 44th Life Achievement Award.”
The institute has typically honoured high-profile actors and directors with the award. Previous recipients include Alfred Hitchcock, Elizabeth Taylor, Martin Scorsese, Meryl Streep – and last year’s honouree, Steve Martin.
According to AFI: “The recipient should be one whose talent has in a fundamental way advanced the film art; whose accomplishment has been acknowledged by scholars, critics, professional peers and the general public; and whose work has stood the test of time.”
Williams, 83, has composed music for more than 150 movies and 200 television shows over seven decades.
He won Oscars for his scores to Jaws, Star Wars, ET and Schindler’s List. His fifth Academy Award was gained for the adaptation and original song score to 1971’s Fiddler On The Roof.
With 49 citations, he holds the record for the most Oscar nominations of any living person.
He has also composed the music for the forthcoming Star Wars sequel, The Force Awakens, which will premiere in Los Angeles on 14 December, it was announced on Thursday.