O'Connell's nomination is a significant achievement as he is the only Northern Hemisphere player included.
He was a inspirational figure in driving Munster to their first Heineken Cup title, scoring three tries in five appearances in last season's tournament. Some stunning performances in Ireland's second row saw him help the men in green to their second Triple Crown in three years.
He joins All Blacks pair Dan Carter and Richie McCaw, Australia full-back Chris Latham and South Africa scrum-half Fourie du Preez.
The winner will be announced at the IRB awards in Glasgow on 26 November, along with the coach and team of the year.
The award takes into account the Test calendar from January to the end of November 2006, including the Six Nations, Tri-Nations, summer and autumn Tests.
The nominees were selected by a star-studded panel of former Test players - Francois Pienaar, Michael Jones, Fabien Galthie, Keith Wood, Gavin Hastings, Jonathan Davies, Dan Lyle, Federico Mendez and convener John Eales.