James, who turns 28 this month, picked up his third NBA Most Valuable Player award while helping the Heat to a 46-20 record and a win over Oklahoma City in the best-of-seven NBA Finals.
Sports Illustrated also pointed to the charity work by a foundation James began to help children in Akron, Ohio, his hometown, as a key part of its editors' decision to honor James.
"This year there was an endless list of high-quality possibilities," Time Inc. Sports Group Editor Paul Fichtenbaum said in an announcement Monday. "But LeBron's stirring accomplishments on and off the court were impossible to ignore.
"He showed tremendous heart during times of adversity, and he delivered with relentless determination. Equally as impressive, although much less heralded, was his development of a hands-on educational program in an Akron, Ohio, school district which will have a profound and long-lasting impact on its students. His accomplishments embody the finest traditions of this award."
The 2012 crown marked the first NBA title for James, who moved to Miami two seasons ago. That departure from Cleveland caused much scorn against James, starting with the nationally television announcement about moving to the Heat but also the perceived slight to Cleveland and his native Ohio.
In James' first season in Miami, the Heat won 58 games (third most in the league) but fell to Dallas in the finals.
The 2011-12 season was seen as redemption for James, who averaged 27.1 points in the regular season and a playoffs-best 30.3 points.
"Did I think an award like this was possible two years ago?" James asked in a Sports Illustrated article. "No, I did not. I thought I would be helping a lot of kids and raise $3 million by going on TV and saying, 'Hey, I want to play for the Miami Heat.'
"But it affected far more people than I imagined. I know it wasn't on the level of an injury or an addiction, but it was something I had to recover from. I had to become a better person, a better player, a better father, a better friend, a better mentor and a better leader. I've changed, and I think people have started to understand who I really am."
This week's announcement marks the 58th Sports Illustrated Sportsman of the Year award, which began with 4-minute-mile record-breaker Roger Bannister in 1954.