The right-back registered four goals and 13 assists in 38 league appearances in 2019-20 - only Manchester City attacking midfielder Kevin De Bruyne set up more goals than the 21-year-old.
Alexander-Arnold also helped the Reds keep 12 clean sheets as Jurgen Klopp's team ended their 30-year wait for the top-flight title.
The Liverpool academy graduate beat seven other players to the award, consisting of Manchester United trio Mason Greenwood, Anthony Martial and Marcus Rashford, Aston Villa star Jack Grealish, Christian Pulisic and Mason Mount of Chelsea and Sheffield United goalkeeper Dean Henderson.
He has also been nominated for the Player of the Season award.
"I can't ever remember one player have such an influence on his team at right-back as Trent has on Liverpool, let alone from a 21-year-old," former Chelsea and Blackburn defender Graeme Le Saux told the Premier League's website.
"He's adding more goals to his game, his assists record is second to none among defenders. I can see him continuing to improve in the environment he is playing in at Liverpool.”
Merseyside's Finest™️@trentaa98 is your @TAGHeuer Young Player of the Season 🙌#PLAwards pic.twitter.com/70VFJAV0de
— Premier League (@premierleague) August 14, 2020
The England international has been topped to become one of the world's best players in the future by Brazil, Roma and AC Milan legend Cafu.
"He’s a sensational player, a rare talent," Cafu told FIFA's website in June.
"If he keeps playing the way he has been he will be regarded as one of the best players in the world. He has the potential to win [The Best FIFA Men’s Player] award.
"He’s technically brilliant, he has so much quality. He has a Brazilian style of play. I love watching him play. And playing in such a great team will help him grow."
Alexander-Arnold made his Liverpool breakthrough in 2016-17 and has made 134 appearances in all competitions. As well as the Premier League crown, he has won the Champions League, UEFA Super Cup and Club World Cup with the Anfield side.