The German Ferrari driver won a record sixth world title last season and looks certain to make it seven in 2004 after claiming his fifth win in five races with victory in Barcelona on Sunday.
Swedish golfer Annika Sorenstam was named world sportswoman of the year, and England's World Cup-winning rugby squad scooped the team of the year prize.
Schumacher beat five-times Tour de France winner Lance Armstrong, Wimbledon tennis champion Roger Federer, American swimmer Michael Phelps, world motorcycling champion Valentino Rossi and England rugby player Jonny Wilkinson to the award.
Sorenstam won the 2003 British Open and the LPGA championship, helped Europe to victory in the Solheim Cup and became the first woman to play in a men's US PGA tour event for over 58
The other nominees for the women's award were tennis players Justine Henin-Hardenne of Belgium and America's Serena Williams, athletes Maria Mutola of Mozambique and Briton Paula Radcliffe and Dutch swimmer Inge de Bruijn.
The award for comeback of the year went to Austrian skier Hermann Maier, who returned from a horrific motorcycle accident to win a fourth World Cup title.
Newcomer of the year was Michelle Wie, the 14-year-old Hawaiian golfer, while Canadian athlete Earle Connor, who broke four world records in 2003, won the award for disabled sportsperson of the year.
A panel of more than 400 sports journalists from around the world came up with the shortlist and 41 sports personalities, including former cyclist Miguel Indurain, tennis player John McEnroe and athlete Ed Moses, selected the winners.