A number of celebrities and political figures attended the event including fellow late-night host Jimmy Kimmel, Steve Martin, Sen. Al Franken, Bill Murray and former first lady Michelle Obama who appeared via video.
"When Dave left 17 long months ago, we had no idea how much trouble we were in," Kimmel joked onstage of how Letterman ended his late-night television career after 33 years in May 2015.
"I look at what's going on now and I think this is your [Letterman's] fault. All of it. Everything was fine until you went off the air. You abandoned us. You went out for a pack of cigarettes and left us to live with an abusive orange stepfather," Kimmel continued in reference to President Donald Trump who Letterman has been critical of.
"For over 30 years, on late night TV, no matter what was going on in our lives, we all knew that Dave would be there for us when we needed a laugh," Obama said onscreen.
The Mark Twain Prize for American Humor "recognizes people who have had an impact on American society in ways similar to the distinguished 19th century novelist and essayist best known as Mark Twain."
Letterman thanked his friends and quoted Twain. "Patriotism is supporting your country all the time, and your government when it deserves it," the 70-year-old said.