The 22-year-old beat off competition from team-mates Ederson and Raheem Sterling, along with Harry Kane (Tottenham), Ryan Sessegnon (Fulham) and Marcus Rashford (United) to land the award that is voted for by fellow professional players.
Sterling came in third place in the voting.
This is the first time a City player has won the award for 42 years - Peter Barnes landed it in 1975/76 - and Sane is the first German to hold the honour.
“I’m absolutely delighted to have won the PFA Young Player of the Year Award," Sane said.
“Not only is this award particularly special because it is one voted for by my peers, but it comes in a season when the performances of the other nominees have been outstanding.
“Raheem and Ederson have been part of this very special season at Manchester City, while Harry [Kane], Marcus [Rashford] and Ryan [Sessegnon] have been brilliant for their clubs.
“It’s an honour to be recognised in this way after what has been a fantastic season for everyone involved at Manchester City Football Club.
“I’d like to thank the manager, the backroom staff, and players here at City, and especially our fans who have supported me ever since I arrived in Manchester. I’m very honoured to win this award.”
Germany ace Sane has been an electrifying presence down the City left all season, scoring nine goals and producing 12 assists in 28 Premier League appearances.
At the last count in March, Sane was also the fastest recorded player in the Premier League and the only one to break the 22mph barrier (22.05mph).
His form has been one of many highlights of City's scintillating campaign, with the Blues winning the title with a record-equalling five games to spare.
Sane joined City from Schalke in summer 2016 and after taking a few months to adjust to Premier League life, the winger's Blues career took flight just before Christmas and he went on to score nine goals in all competitions by the end of the campaign.
His rapid development has continued this season, with the PFA award recognition of his abilities. A bright Blue future awaits.
Nominees for the Young Player award must be 23 or younger at the start of the season.
Meanwhile, Keira Walsh was runner up in the Women's Young Player of the Year, with Ellie Roebuck in third place. Bristol City's Lauren Hemp won the award.
In the men's Player of the Year award, Kevin De Bruyne was runner up to Mo Salah.