A former player and manager, Dalglish has been recognised for his services on and off the field, including his support for the victims of the 1989 Hillsborough tragedy.
After winning nine titles with Celtic, Dalglish – Scotland's most capped player with 102 appearances – helped Liverpool to three European Cups and six league trophies among others during an illustrious playing career at Anfield.
The 67-year-old won 11 pieces of silverware as Liverpool manager – including three league crowns – before guiding Blackburn Rovers to Premier League glory in 1994-95.
"Obviously it was for others with more education and knowledge than myself to decide whether or not I deserved a knighthood, and it goes without saying that I am hugely grateful to them for the decision that they have made," said Dalglish, who also helped raise more than £10 million ($13m) to fight cancer care across Merseyside.
"All I can say from my own point of view is that I am definitely no more deserving of an accolade like this than Jock Stein, Bill Shankly and Bob Paisley were.
"I am just fortunate enough to be in the right place at the right time and I would like to dedicate this honour to them because without the standards that they set at Glasgow Celtic and Liverpool, individuals like myself would not have been able to thrive as much as we did."
Meanwhile, world heavyweight champion Anthony Joshua received an OBE.
Joshua – holder of the WBA, IBF and WBO belts amid negotiations over a blockbuster showdown with Deontay Wilder – was honoured for his services to boxing, having been rewarded with an MBE in 2013 after claiming a gold medal at the 2012 Olympic Games in London.