The judging panel deliberated for five hours before unanimously naming Saunders as the winner.
The form and style of this utterly original novel reveals a witty, intelligent, and deeply moving narrative, said Baroness Lola Young, chairwoman of the judges.
Lincoln In The Bardo details the evening of February 22, 1862 - when a grief-fuelled Lincoln visited his sons crypt - exploring themes of death, grief and the possibilities of life, as well as the contrast between Lincolns personal tragedy and public role.
Saunders told Time magazine that he had not set out to write about the US statesman but was captivated after hearing about Lincolns visit.
The author of six collections of short stories and a long body of journalism, the Texas-born Saunders came to writing relatively late, initially training as a geophysicist.
Earlier this year Saunders told the Financial Times about the style of his novel, which reads like a play and includes real and fictional passages.
I thought about hip-hop sampling and wondered, Can I do something like that in a book? I thought, Yes, if its feeding the central story, then I can do it.
Head judge Young denied any concerns about Saunders nationality, saying: We dont look at the nationality of the writer. Were solely concerned with the book, what that book is telling us.
First awarded in 1969, the Man Booker Prize is recognised as one of the most prestigious in the literary world.
It is the fourth year the awards have been open to any writer regardless of nationality, provided the book was written originally in English and was published in the UK.
The award was previously open only to writers from Britain, Ireland, Zimbabwe or countries in the British Commonwealth.
- PA