New Zealand have won 11 of their 12 Test matches in 2005.
In June, they whitewashed the British & Irish Lions 3-0 in the three-match Test series.
They also reclaimed the Tri-Nations and recently completed a Grand Slam tour of the United Kingdom to finish the year at number one in the IRB World Rankings.
At the helm of the team has been Canterbury's Carter who has emerged as arguably the world's best number 10.
Henry said: "Over the last 12 months, Dan has made an outstanding transition from the centres to first five-eighth (fly-half). He has played some exceptional games and he's also a high percentage goal-kicker."
Henry, who has masterminded the All Blacks' success after stints with Wales and the Lions, added: "We've been very fortunate to have a chance at history this year.
"To win the New Zealand versus Lions Series, a Bledisloe Cup and Tri-Nations Series, and then have a shot at a Grand Slam is very special. The players and management deserve credit for that."
Other nominees for Player of the Year were fellow All Black team-mates Richie McCaw and skipper Tana Umaga, and South Africa duo Victor Matfield and Brian Habana.
New Zealand beat 2005 Grand Slam heroes Wales for the team title while Henry pipped Wales' Mike Ruddock for the Coach of the Year.