Rahman - the first musician to be awarded this honour by the Festival - has been recognised for his impressive body of work in Indian and international film.
Festival chairman Abdulhamid Juma said: "AR Rahman is an inspiration for countless musicians and composers, and has brought a fresh infusion of talent to the Indian film industry.
"Through his international foray, working with some of the world's most accomplished musicians, he demonstrated the power of music to cross all barriers and connect with a global audience. We are honoured to present Mr. Rahman with the DIFF 'Lifetime Achievement' Award."
The Indian composer and song writer has more than 100 film soundtracks to his credit in several Indian languages as well as English and Mandarin. His work for Slumdog Millionaire won two Academy Awards for 'Best Original Score' and 'Best Original Song'.
Rahman was named by Time magazine as one of the world's most influential people.
The composer will kick off his world tour with a concert in Dubai on December 9.