The public also voted him BBC Sports Personality of the Year in 2000.
Sir Steve was honoured after winning his record-breaking fifth Olympic Gold medal at the Sydney games in the coxless fours.
His fellow oarsmen - Matthew Pinsent, James Cracknell and Timothy Foster - also received honours at the palace.
Sir Steve, from Marlow Bottom, Buckinghamshire, battled diabetes and colitis to complete his memorable achievement in Sydney.
He also won the coxed four gold in Los Angeles in 1984 and the coxless pair gold in Seoul in 1988, Barcelona in 1992 and Atlanta in 1996.
But when the Queen dubbed him a Knight Bachelor, she asked Sir Steve about the state of his feet - a reference to his recent participation in the London Marathon.
Sports personality
"I told the Queen I still have a couple of blisters and my legs were so stiff I had to walk downstairs backwards," he said.
Sir Steve added: "It's a great honour - it's great to have an honour from your country.
"There's been talk about me getting a knighthood for a number of years but I'd always put it to the back of the my mind."
When Sir Steve returned to his home town after Sydney he was greeted by 30,000 well-wishers who lined the streets.
The public also voted him BBC Sports Personality of the Year in 2000.
He has been honoured before by the Queen for previous rowing achievements.
He was awarded a CBE in the 1997 New Year's Honours List for services to rowing, and an MBE 10 years ago.
The Queen also featured pictures of his victory in Sydney in her Christmas message.
Among other who was also collecting honours was former Olympic silver-medallist runner Adrian Metcalfe, 59, who picked up an OBE for services to sport.
Annie Nightingale, 59, the first woman disc jockey on Radio One, received an MBE for services to radio broadcasting.