With the prize, Yousafzai, 17, becomes the youngest Nobel Prize winner, eclipsing Australian-born British scientist Lawrence Bragg, who was 25 when he shared the Physics Prize with his father in 1915.
Satyarthi and Yousafzai were picked for their struggle against the suppression of children and young people, and for the right of all children to education, the Norwegian Nobel Committee said.
"The Nobel Committee regards it as an important point for a Hindu and a Muslim, an Indian and a Pakistani, to join in a common struggle for education and against extremism," said Thorbjoern Jagland, the head of the Norwegian Nobel Committee.
"It has been calculated that there are 168 million child labourers around the world today," Jagland said. "In 2000 the figure was 78 million higher. The world has come closer to the goal of eliminating child labour."
60-year-old Satyarthi, who runs an NGO in India that has been in the forefront of rescuing children from forced labour and trafficking. Satyarthi has headed various forms of peaceful protests and demonstrations, focusing on the exploitation of children for financial gain.
Satyarthi, who runs NGO Bachpan Bachao Aandolan (Save Childhood Movement), has maintained the tradition of Mahatma Gandhi and headed various forms of peaceful protests, "focusing on the grave exploitation of children for financial gain," the Nobel committee said.
"Extremely delighted... This is recognition of our fight for
child rights," Kailash Satyarthi said.
Yousafzai was attacked in 2012 on a school bus in the Swat Valley in northwest Pakistan by masked gunmen as a punishment for a blog that she started writing for the BBC's Urdu service as an 11-year-old to campaign against the Taliban's efforts to deny women an education.
Unable to return to Pakistan after her recovery, Yousafzai moved to Britain, setting up the Malala Fund and supporting local education advocacy groups with a focus on Pakistan, Nigeria, Jordan, Syria and Kenya.
The prize, worth about $1.1 million, will be presented in Oslo on Dec. 10, the anniversary of the death of Swedish industrialist Alfred Nobel, who founded the award in his 1895 will..