Actresses including Meryl Streep, Sally Field, Sandra Bullock and Cameron Diaz saluted the 76-year-old Oscar-winner at Thursday's event in Hollywood.
"I'm so happy to add another woman's name to the list," she said.
Fonda's brother, Easy Rider star Peter Fonda, said "Jane, I've never been prouder of you, and I know Dad is too."
Their late father, actor Henry Fonda, was an Oscar-winner aged 76 for the 1981 film On Golden Pond and received the AFI award in 1978.
Presenting the honour to Jane Fonda, actor Michael Douglas said: "Jane, you are true film royalty, not through birth, but through your talent."
Fonda, nominated for seven Academy awards, has won two Oscars for 1971's Klute and 1978's Coming Home.
Fellow Oscar-winner Meryl Streep, who made her film debut opposite Fonda in 1977's Julia, said of her initial meeting with the star: "She had an almost feral alertness, like this bright blue attentiveness to everything around her.
Sally Field added: "She brought this new kind of raw sexuality, of gritty innocent honesty, vulnerable to the core - and I had never seen anything like it."
There were moments of lightness during the ceremony at the Dolby Theatre, as actor Jeff Daniels, one of Fonda co-stars in the HBO series The Newsroom, sang a tribute to the actress, offering lyrics about her "abs, buns and thighs" as one of her exercise videos played on a screen behind him.
And comic actress Wanda Sykes took the stage dress in a silver parody of the outfit worn by Fonda in her 1968 film Barbarella, directed by her then-husband Roger Vadim.
As she accepted the award, Fonda offered some advice on career longevity for the roomful of celebrities gathered: "Ask questions, stay curious. It's much more important to be interested than to be interesting."

The Chesterfield striker was cleared of rape at a retrial in 2016. He had been charged with attacking the woman in a hotel room in Rhyl, Denbighshire.
Following the retrial, North Wales Police investigated after the woman's name was revealed on social media.
Anyone who reports being a victim of a sex offence is guaranteed lifelong anonymity.
North Wales Police's temporary Supt Jason Devonport said the publishing of her name was a "serious" offence.
The men, aged between 16 and 23, were from the Sheffield, Derbyshire and Birmingham areas.
All were cautioned after admitting publishing the name of the woman - who has lifelong anonymity under the Sexual Offences (Amendment) Act 1992 - after the retrial verdict.
Supt Devonport said: "This type of offence is fortunately rare, however, I'd like to emphasise all police forces take offences of this nature very seriously.
"We will vigorously pursue and prosecute those who don't respect victims' anonymity."
In November 2012 - following the initial trial - nine people were made to pay compensation to the woman after they admitted naming her on Twitter and Facebook.
Mr Evans, 28, was originally found guilty of rape at Caernarfon Crown Court in 2012, but that conviction was quashed in April 2016. A retrial jury found him not guilty of the offence six months later.
The Chesterfield striker had been charged with attacking her at a hotel on 30 May 2011.
He was found not guilty of the same charge, after a retrial at Cardiff Crown Court, in October 2016.
Mr Evans' former club Sheffield United announced this week it was to re-sign him.
A cast of stars have paid tribute to actress and political activist Jane Fonda as she accepted the American Film Institute's Life Achievement Award.
[NEXT_CONCEPT]
Ten men who revealed the identity of the woman involved in footballer Ched Evans' rape trial have been cautioned.