Williams took the award for the second time despite her foul-mouthed outburst at a line judge at this year's U.S. Open.
Williams was fined $175,000 and put on probation for two years by the Grand Slam Committee following the tirade that resulted in her receiving a point penalty and losing her semi-final against Kim Clijsters.
Federer had no such shadow hanging over his season.
"It is an honor for me to be named ITF World Champion for a fifth time," Federer said in an ITF statement. "It was an incredible year for me both on and off the court.
Serena and sister Venus were named women's doubles World Champions for the first time with Bob and Mike Bryan taking the men's doubles honor for a record sixth time.
"This has been another memorable year for tennis, with some outstanding performances by our World Champions. Roger Federer has truly earned his place in the history books, while the Williams sisters remain the strongest competitors on the women's tour," ITF president Francesco Ricci Bitti said.
(Reporting by Martyn Herman; editing by Dave Thompson)