It was the first time a Canadian has made the list in the 25 years since the magazine started its annual feature.
"This gives my family entry into teasing me for the rest of my life," the 34-year-old said.
Johnny Depp, George Clooney, Brad Pitt and Tom Cruise are among previous holders of the title.
"The most difficult part is going to be organically working this title into a conversation with random strangers," Reynolds told People.
"The sexiest thing about Canadians is that there's an inherent ability to be self-deprecating. That has served me well in my career and personal life."
Previous winner Clooney said he was pleased Reynold had won, saying he was "very happy for him".
Speaking at a humanitarian awards dinner in New York on Wednesday, he added: "I'm also happy that it's not Brad."
Reynolds began his acting career as a teenager, going on to appear in Blade: Trinity, Smokin' Aces and X-Men Origins: Wolverine
He recently starred in the film Buried, playing a US contractor working in Iraq who is buried alive.
Reynolds will be seen playing the titular comic book hero in Green Lantern, released next summer.
Previously engaged to singer Alanis Morissette, he married the actress Scarlett Johansson in 2008.
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