The annual award, which comes with a reward of £1.1 million, is given to those who have made an exceptional contribution to affirming life's spiritual dimension.
Previous winners include Mother Theresa, Billy Graham and the Dalai Lama.
King Abdullah has been given the prize following years of peace building within the Islamic community.
Announcing him as this year's winner Heather Templeton Dill, president of the John Templeton Foundation and granddaughter of Sir John Templeton, said: "His Majesty King Abdullah's work is indeed inspiring.
"He has underscored the importance of Islam's diversity rather than seeking to invent or enforce uniformity where none exists.
"He has built upon the power of principled pluralism to extend religious harmony among the 1.8 billion followers of Islam, the world's second largest religion, so that each can recognize one another as Muslims."
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King Abdullah will be formally awarded the Templeton Prize in a ceremony in Washington DC on November 13.
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