The Newport Gwent Dragons blindside missed the opening win over Ireland in Dublin but returned with a man-of-the-match display in the win over Scotland, before following that up with another Herculean effort in the championship-clinching victory over France last weekend.
The 23-year-old beat Ireland fly-half Jonathan Sexton to top spot after securing over 25% of the public vote which attracted over 30,000 votes. Italy's captain Sergio Parisse was third.
The 12-man shortlist for the award, which was won by Italy's Andrea Masi last year and is made up of players who receive man-of-the-match awards during the tournament, was dominated by members of the triumphant Welsh squad, with Sam Warburton, Mike Phillips and Alex Cuthbert joining Lydiate among the nominees.
Lydiate's achievement matches those of Martyn Williams and Shane Williams, who won the award in Wales' previous Grand Slam seasons in 2005 and 2008.
"I am really surprised to be honest. I am genuinely chuffed to bits," said Lydiate. "It tops off an amazing competition for me and for Wales.
"To be part of such a talented Wales team and win the Grand Slam in Cardiff on Saturday was incredible in itself but to then be voted player of the championship is absolutely unbelievable.
"It is a massive honour to win, especially given the quality of the other players up for the award. Thanks to everyone who voted for me, it means a lot."