Molitor won the honor Tuesday in voting by members of the Baseball Writers' Association of America.
Torey Lovullo of the Arizona Diamondbacks won the NL award. In his first full season as a big league skipper, Arizona reached the playoffs a year after going 69-93.
Molitor joined Frank Robinson as the only Hall of Fame players to win a manager of the year award, which was first presented in 1983.
The Twins went 85-77 this season and earned their first playoff spot since 2010 before losing to the Yankees in the AL wild-card game. Last year, the Twins led the majors with 103 losses.
The 61-year-old Molitor was born and raised in St. Paul, Minnesota, and got the last of his 3,319 career hits with the Twins in 1998.
Cleveland's Terry Francona was second and Houston's A.J. Hinch finished third. Voting was completed before the start of the playoffs.
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Paul Molitor has won the American League Manager of the Year award after his Minnesota Twins became the first team to make the playoffs following a 100-loss season.