Jackson, right, with cast members Christopher Lee and Liv Tyler
Jackson, who has spent seven years on the $270m project, is awarded the Companion of The New Zealand Order of Merit.
His partner, Frances Walsh, who co-wrote and co-produced the Rings movie, is also honoured for services to film making as a Member of the New Zealand Order of Merit.
Jackson's previous movies include ghostly comedy The Frighteners and true-life murder drama Heavenly Creatures, starring a young Kate Winslet, which was nominated for a best screenplay Oscar.
The New Zealander has said he was amazed that he was allowed to direct such a prestige project as The Lord of the Rings with his previous CV.
"I do think it's fairly unbelievable with the track record I have got and the fact that I have never made a movie that has made a huge amount of money.
"I'm just happy if people in New Zealand feel proud about what we have done," he has been quoted as saying.
Jackson said recognition was important in a country which normally focuses on rugby union and other sport.
"We're used to the achievements of our sporting heroes being honoured, and it's nice to have recognition for the arts and culture. To me that means more than any personal thing."
The first of the three films, The Fellowship of the Ring, opened this month to great acclaim. The following two films will be released in late 2002 and late 2003.
The Fellowship of the Ring has already been nominated for a Golden Globe for best film drama and is even tipped as an Oscar contender.
New Zealand's centre-left government last year dropped the knighthoods of the British honours system in favour of local awards.