The announcement was made by Dr. Meredith Burgmann, President of the Australian Council for International Development and Professor Stuart Rees from the Sydney Peace Foundation at a reception hosted by the Australian Embassy in Harare earlier in the week.
The international award is in its fifteenth year and past winners include Dr. Hanan Ashrawi, Professor Patrick Dodson, Archbishop Desmond Tutu and Professor Noam Chomsky.
She will travel to Australia in November to deliver the City of Sydney Peace Prize Lecture and receive the award valued at $50,000.
Mrs Holland has an impressive history of activism in Australia and Zimbabwe.
Campaigning for recognition of Aboriginal rights as well as for a democratic government in her homeland, she is currently serving as the Minister for National Healing, Reconciliation and Integration in the joint national unity government of Robert Mugabe and Morgan Tsvangirai.
Holland was brutally attacked by Zimbabwean police in 2007 suffering broken limbs after she attended a protest with Mr. Tsvangirai's party Movement for Democratic Change (MDC).
WATCH: Dateline's interview with Sekai Holland.