The magazine's pick was announced on Monday night on The Tonight Show Starring Jimmy Fallon.
Bailey takes the mantle from The Office and Jack Ryan star John Krasinski, who was the 2024 selection.
"It's a huge honour," Bailey, 37, told the magazine.
"Obviously, I'm incredibly flattered. And it's completely absurd."
Bailey had audiences swooning as Prince Fiyero in his 2024 big-screen debut in Wicked, the popular movie musical in which he proudly urges fellow students to join him in his shallowness.
The second half arrives in cinemas on November 21.
He dripped with charm as Lord Anthony Bridgerton on Netflix's Bridgerton, and earned a 2024 Emmy nomination for his role in the Showtime series Fellow Travelers.
Most recently, he starred in Jurassic World Rebirth, which came out in July.
Bailey told People that he's known he wanted to be an actor since he was five years old and his grandmother took him to see a production of the musical Oliver!
Within two years he had achieved that dream, preforming with the Royal Shakespeare Company.
He's had plenty of stage credits since then, including starring in Shakespeare's Richard II in London earlier in 2025.
Bailey, who has spoken openly about being a gay actor, founded The Shameless Fund, which helps to support LGBTQI organisations.
"I know the LGBT sector is under immense threat at the moment," he said.
"So it's been amazing to meet people who have the expertise and see potential that I could have only dreamed of."
The first Sexiest Man Alive was Mel Gibson in 1985.
Other past recipients include Brad Pitt, George Clooney, John F Kennedy Jr, David Beckham, Michael B Jordan, John Legend, Dwayne Johnson, Paul Rudd, Pierce Brosnan and Patrick Dempsey.
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