Known as the pope of German literary criticism, Mr Reich-Ranicki, 82, has himself been a best-selling author.
He described the prize, which carries a stipend of 50,000 euros (£32,000) as "the highest distinction I could have received".
The prize jury said Mr Reich-Ranicki had "greatly contributed to the wider public's interest in literature" through his works and his TV appearances.
He hosted a literary programme on the ZDF public TV network for 13 years, watched at times by millions of viewers.
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His autobiography, My Life, has sold more than 500,000 copies.
He was in the headlines again this year as the inspiration for a controversial book by Martin Walser called Death Of A Critic, which was widely criticised for anti-Semitism.
The main character in the book is a Jew based on Mr Reich-Ranicki, who is a survivor of the Holocaust.
Critics say author Martin Walser used the novel to ridicule Mr Reich-Rainicki, a charge the author has vigorously denied.
The Goethe prize is given every two or three years on the birthday of Johann Wolfgang von Goethe, who was born on 28 August 1749.
Since its creation in 1927 the prize has been awarded to the German writers Herman Hesse (1946) and Thomas Mann (1949), as well as the father of psychoanalysis, Sigmund Freud (1930).