In 1964, he invited two mentally disabled men to leave their abusive institution and live with him in a small house in a village near Compi?gne, 60 miles north of Paris. He still lives there.
Half a century later, the idea of L'Arche - or "the arc" - has spread around the globe. Mr Vanier has written 30 books on religion, normality, success and tolerance.
The Templeton Foundation, launched by the late Anglo-American financier and philanthropist, Sir John Templeton, announced yesterday that it had chosen "this extraordinary man" as the winner of its annual prize.
Mr Vanier's message of compassion and respect for the apparently weakest in society, the foundation said, "has the potential to change the world for the better".
Previous winners have included the Dalai Lama, Archbishop Desmond Tutu and Aleksandr Solzhenitsyn.
Mr Vanier also founded a network of support groups of families with mentally handicapped children. There are now over 1,500 "Faith and Light" groups in 82 countries.
The obsession of the modern world with success, status and riches has been especially destructive for the mentally disabled, Mr Vanier says. At the same time, he argues, the "strong" and the "successful" have cut themselves off from their own humanity.
Volunteers who join L'Arche discover they are gaining more than they are giving, he said. "The strong need the weak in order to become more human, more compassionate."
Mr Vanier left the Navy in 1960 after almost drowning. He went to live in Paris to think, and write, about the meaning of life. A Dominican priest, Thomas Philippe, took him to see a mental institution near Meaux, east of the French capital. "I was horrified," he recalled.
"There were 80 people living in a building meant for 40. They were subjected to terrible violence."
Mr Vanier bought a house in the village of Trosly-Breuil near Compi?gne and invited two men from the institution to live with him.
"People with (mental) disabilities have been among the most oppressed and humiliated," he said. "They were called idiots. But these are beautiful people."
Mr Vanier was nominated for the prize by John Swinton, Professor in Practical Theology at the University of Aberdeen. Professor Swinton said the importance of Mr Vanier was that his ideas were not abstract but grew from "real people".
In a statement, Mr Vanier said that his philosophy applied as much to world events as to the home or workplace.
"Before being Christians or Jews or Muslims, before being Americans or Russians or Africans, before being generals or priests, rabbis or imams, before having visible or invisible disabilities, we are all human beings with hearts capable of loving," he said.
- Independent
