Folau is only the fourth back in 14 years to win the medal after Chris Latham (2006), Matt Giteau (2009), and Kurtley Beale (2011).
The medal is voted for by the Wallabies on a 3-2-1 basis after each Test over the past 12 months, from last year's spring tour to last weekend's Bledisloe Cup Test.
Prolific tryscoring Folau comes off contract at the end of next year and has never ruled out moving back to rugby league, where he started his stellar professional career.
Folau 25, has scored 15 tries in 25 Tests, and his tally of 10 in 2013 equalled the most in a year by a Wallaby, set by another former rugby league star, Lote Tuqiri.
In 2013, Folau also won the Super Rugby rookie and Australian Rugby Players' Association and International Rugby Players' Association's newcomer of the year awards.
Lock Sam Carter, who debuted against France in June and has played eight Tests, was named Wallabies rookie of the year.
New Wallabies head coach Michael Cheika won the Australian Super Rugby coach of the year after steering the NSW Waratahs to their maiden title, which earned them the Australian Super Rugby team of the year.
Folau apart, the big winner of the awards night at Sydney's Randwick Racecourse was Melbourne Rebels flanker Sean McMahon, who took out three awards.
Uncapped McMahon, who was named on Wednesday in the Wallabies spring tour squad, won the Australian U20s player of the Year; the National Rugby Championship Player of the series; and the Super Rugby rookie of the Year.
Emilee Cherry won the awards for women's player of the year in both sevens and 15-a-side, while Cameron Clark was named male sevens player of the year.
"It's a huge honour and a privilege to be on the list with so many great players who have worn this John Eales Medal," Folau said.
"There's so many great players in the team that could have won this award.
"But without an overall team performance, I wouldn't have achieved this award."It's huge to be voted by your peers and I hold that in high regard.
"This is definitely up there with all the awards and accolades that I've achieved across all the different codes that I've played.
"It's my second year in rugby, but I'm thoroughly enjoying my time.
"For me, the next thing is going across to Europe for the next five weeks and trying to get a job done."
Folau welcomed the appointment of Michael Cheika as new Wallabies coach, ranking him alongside his rugby league mentors Craig Bellamy and Mal Meninga.
He hoped Waratahs and Wallabies teammate Kurtley Beale would return to the team environment after his hearing on Friday.
BACKS TO HAVE WON THE JOHN EALES MEDAL
*Chris Latham (2006)
*Matt Giteau (2009)
*Kurtley Beale(2011)
*Israel Folau 2014
JOHN EALES MEDAL ROLL OF HONOUR
*2002: George Smith
*2003: Phil Waugh
*2004: David Lyons
*2005: Jeremy Paul
*2006: Chris Latham
*2007: Nathan Sharpe
*2008: George Smith
*2009: Matt Giteau
*2010: David Pocock
*2011: Kurtley Beale
*2012: Nathan Sharpe
*2013: Michael Hooper
*2014: Israel Folau
