Williams was presented a bronze caddie statue by NBC and Golf Channel anchor and reporter Steve Sands at the awards dinner following the BMW Championship at the Gardner Heidrick Pro-Am at Cherry Hills Country Club.
"I want to thank the Western Golf Association for inducting me into the Caddie Hall of Fame," Williams said. "I very much appreciate this honour."
Western Golf Association president and chief executive John Kaczkowski said Williams' successful career embodied the caddie values of hard work, dedication and teamwork.
"For more than 15 years, no one has been more synonymous with caddying than Steve Williams," he said.
"In addition to caddying for major champions Tiger Woods and Adam Scott, Steve has elevated the profile of caddies worldwide and inspired countless young people to want to be caddies."
The WGA oversaw the Caddie Hall of Fame, which highlighted importance of caddying through recognising individuals who had played a prominent role in the promotion of caddies as an integral part of the game of golf.
Past honourees included Jack Nicklaus and Tom Watson.
Williams was 13 when he got his first professional caddying job, for Australian great Peter Thomson.
He later caddied for Greg Norman and Raymond Floyd before joining Tiger Woods in 1999.
With Williams on the bag, Woods won 13 major championships, the WGA said.
He now caddies for Adam Scott, who won the 2013 Masters.
Sands said Williams had "been on the bag" for more major championship wins than any other caddie.
"Steve's work embodies the caddie values of hard work, dedication and teamwork. There is no caddie more deserving of this honour."
