Sir Kenny, a hero in the eyes of all Liverpool fans, received the honour from Prince Charles at the ceremony which took place at Buckingham Palace.
The Scottish forward played for the Anfield club during their most successful period - which included winning six first division titles and three European Cups, and then he went on to be just as successful as a manager.
He led the club from 1985 to 1991 and took them to three more league titles, and won the FA Cup, before going on to manage Blackburn Rovers during that famous season in which they won the Premier League.
It was for his charity work that Dalglish is also highly praised for particularly in the aftermath of the Hillsborough disaster, in which 96 people died during the 1989 FA Cup semi-final between Liverpool and Nottingham Forest.
The Scottish and English football hall of fame inductee helped a number of the families affected by the disaster in the aftermath and has been frequently involved in the ‘Justice for the 96’ campaign.
Dalglish also set up a cancer charity with his wife after she was diagnosed with breast cancer, and it has gone on to raise millions in the fight. Dalglish has been finally recognised for all that work.
After receiving this honour, Sir Kenny spoke to the BBC about helping the families affected by the Hillsborough disaster: "They were fantastically supportive of the football club and at that instance it was important for us to turn supporter.
"They needed a bit of help, we wanted to help them, and I'm sure they would have done the same for us - I think that's what life is all about."
Speaking about being recognised for his career in football, he added: "I've been very fortunate with the people I've worked with in football, both as a player and a manager, they've been fantastic people.
"And the two football clubs I've played for Celtic and Liverpool - the two most successful clubs of the era I was playing in - I've been fortunate as well, you always need a bit of luck to get a bit of success."