The Australian Human Rights Commission says Thorpe has been a "passionate advocate for Indigenous people" for over a decade.
Thorpe's charity, Fountain For Youth, works with Indigenous children in the Northern Territory across 20 communities, with a focus on health and education.
The charity looks to address what it says is "a human crisis in our own backyard".
In a pre-recorded message, Thorpe says he is "honoured and humbled" to receive the medal.
Thorpe says he wants to dedicate the award to the workers in remote communities.
"I'd also like to dedicate this award to the people that are on the ground that do this work on a daily basis that contributes to communities that I don't," he said.
"I am able to raise the profile around issues that Indigenous people are facing, the troubles that they may have and also the triumphs and successes that they have in those communities."
Thorpe says he was shocked by the facilities in communities outside of Katherine when he first visited the area.
He says the Indigenous communities in remote Australia are in the greatest need for health and education services.
"While the situation was tough, I could also see these people had hope and with that I saw there was an opportunity to be able to work alongside them," he said.
The swimming legend is also an advocate of the Close the Gape campaign, which aims to improve the life expectancy of Aboriginal and Torres Straight Islander people.
The commission's president, Professor Gillian Triggs, says the judges selected Thorpe for his dedication to helping improve the lives of Indigenous children.
"Ian Thorpe is more than a great Olympian - he has demonstrated a strong and enduring commitment to ensuring that vulnerable children are given the opportunity to realise their full potential," she said.