Maggie MacDonnell, praised for "changing the lives of her students and transforming her community", was among 10 finalists chosen from 20,000 nominations and applications from 179 countries.
She has taught for the past six years in the Inuit village of Salluit, in the Canadian Arctic, which has a high rate of suicide, according to her biography provided by the award organisers.
MacDonnell said she has witnessed over 10 suicides.
"As a teacher, when I come to school the morning after there is an empty desk in that classroom. There is stillness and silence," she said, fighting back tears.
"Thank you for bringing global attention to them," she added.
MacDonnell has created a life skills programme specifically for girls, in a region where teenage pregnancies are common, with high levels of sexual abuse, according to her biography.
Many teachers leave their posts midway through the academic year due to stress and the harsh conditions endured by the indigenous community.
Canadian Prime Minister Justin Trudeau congratulated MacDonnell in a video message. "We are all proud of you," he said.
MacDonnell, who has also been a temporary foster parent in the Inuit community, was handed the award at a ceremony that opened with a performance by Italian tenor Andrea Boccelli.
The Nobel-style award was set up three years ago by the Dubai-based Varkey Foundation. The prize is paid in instalments and requires the winner to remain a teacher for at least five years.
Last year, Palestinian teacher Hanan al-Hroub won the prestigious prize for her innovative approach of using play to counter violent behaviour among her students in the West Bank.