The prize committee said Mr Pires, who stepped down in August, had helped make the archipelago off the West African coast a “model of democracy, stability and increased prosperity”.
The prize is supposed to be awarded each year to a democratically elected leader who has voluntarily left office.
There has been no winner for two years.
The committee said there had been no suitable candidate.
The $5m award, given over 10 years followed by $200,000 a year for life, is the world’s most valuable individual prize.
The previous winners are Botswana’s President Festus Mogae and Mozambique’s Joaquim Chissano.
Sudan-born telecoms entrepreneur Mo Ibrahim says the prize is needed because many leaders of sub-Saharan African countries come from poor backgrounds and are tempted to hang on to power for fear that poverty awaits them when they leave office.
Mr Pires played a key role in the fight against Portuguese colonial rule and became prime minister at independence in 1975.
He became president in 1991 and stepped down after two terms, rejecting calls to change the constitution to remain in office, like several African leaders have done.
Committee head Salim Ahmed Salim praised his “humility” and “personal integrity”.
“Dismissing outright suggestions that the constitution could be altered to allow him to stand again, he said: ‘This is a simple matter of faithfulness to the documents that guide a state of law’.”
With Mr Pires not standing, opposition leader Jorge Carlos Fonseca won the August elections against Manuel Inocencio Sousa from the governing African Party for the Independence of Cape Verde (PAIVC).
Cape Verde – an Atlantic archipelago of 10 islands – has experienced significant economic growth in recent years, partly due to a boom in tourism.
It is now classed by the United Nations as a middle-income country. READ MORE