"It's a great honour for me to be here, because it has been an incredible season and one of great satisfaction," said the 33 year-old Neapolitan, who also won the Golden Ball award as European Player of the Year in November.
He said shortly before the ceremony: "The competition is scary, so strong. It's not usual for a defender to sit between Ronaldinho and Zidane."
"Of course it must be a great compliment for the coaches I've had this year. It also underscores the way I am playing.
"I can't ask for anything else, with the World Cup and Golden Ball award - you can't do any better than that."
Cannavaro, who moved from Juventus to the Spanish club this year.
France's retired three-time World Player winner Zidane, who finished his career in controversy after being sent off in the World Cup final, came second.
"It's not usual for a defender to sit between Ronaldinho and Zidane"
Brazil and Barcelona's 2004 and 2005 winner Ronaldinho failed to win an unprecedented three titles in a row and came third.
Cannavaro, who controlled Italy's defence in the Germany 2006 World Cup, was the first defender to carry away the world player of the year award, which has been the preserve of strikers and midfielders since 1990.
Ball boy to golden boy
"It is more difficult for a defender to come this far, because you have Zidane and Ronaldinho who do all these wonderful things," he said.
Only fellow Real Madrid defender Roberto Carlos (1997) and Italian Paolo Maldini (1995) have come close before as runners-up.
Cannavaro became a ball boy at the city's San Paolo stadium while Diego Maradona played there, before making his debut for the local club in Serie A in 1993 against Juventus.
World Cup winner Cannavaro
Two years later he moved to Parma alongside French defender Lilian Thuram, gaining his first taste of success to lift the Italian Cup, a Uefa Cup title and make his debut for Italy in 1997.
After a passage with Inter Milan, Cannavaro made a comeback from a broken tibia by joining Juventus in 2004.
As well as winning the World Cup this year, Cannavaro won the Serie A with the Turin side in 2004/05 and 2005/06 before the club was stripped of those titles and demoted to the second division in a match fixing scandal this year.
In an unusual twist of fate after Zidane's notorious World Cup exit, Cannavaro was sent off on Sunday for the first time since he accompanied coach Fabio Capello from Juventus to Real Madrid.
"It's difficult to accept. I've got a red face and a red eye as well. The ball didn't touch my hand," commented Cannavaro in Spain after the second yellow card which led to his sending off after 53 minutes against Espanyol.