The American fugitive was nominated by Green politicians in the European Parliament for leaking details of US surveillance.
Nominees also include Malala Yousafzai, the Pakistani teenager shot in the head for demanding education for girls.
Former recipients of the prize, awarded by the European Parliament, include Nelson Mandela and Aung San Suu Kyi.
Edward Snowden’s nomination recognized that his disclosure of US surveillance activities was an “enormous service” to human rights and European citizens, the parliament’s Green group said.
The former NSA employee, who has sought asylum in Russia, said in a statement read out in parliament that he was grateful to Europe’s politicians for “taking up the challenge of mass surveillance”.
“The surveillance of whole populations, rather than individuals, threatens to be the greatest human rights challenge of our time,” Edward Snowden said.
The Sakharov prize for freedom of thought is awarded annually in memory if Andrei Sakharov, a Soviet scientist and dissident.
The winner of this year’s prize will be announced on October 10.
The third nominee for the award is a group of Belarusian political dissidents jailed in 2010 for protesting against the disputed re-election of President Alexander Lukashenko.
The group includes activists Ales Bialiatski, Eduard Lobau and former presidential candidate Mykola Statkevich.
Ales Bialiatski was also named as the first person to receive the Council of Europe’s Vaclav Havel human rights prize, worth €61,000 ($81,000).
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