Karl guided the Nuggets to a franchise-record 57 victories this season, including an NBA-best home record of 38-3.
Denver earned the third seed in the Western Conference before falling to the Golden State Warriors in the conference quarterfinals.
The 62-year-old mentor garnered 62 first-place votes for 404 points, easily besting Miami's Erik Spoelstra (190) and New York's Mike Woodson (127).
With 1,131 career wins, Karl ranks sixth on the all-time coaching list and has racked up 21 consecutive non-losing seasons.
"I am honored and energized to represent coaching and be their ambassador as coach of the year and continue to symbolize the great coaching there is in the NBA," Karl said.
"There are probably seven or eight guys who are deserving of it and another 10 or 15 other coaches who have done a great job and aren't getting any recognition."