The veteran comic was made a knight by Prince William in honour of his decades-long showbiz career and charity work.
Sir Ken, who became an OBE in 1982, is still touring with his Happiness show at the age of 89.
Famed for his wild hair and infamous "tickling stick", Sir Ken said he was "delighted" by the honour.
"One of the happiest things is the joy and pleasure it brings to your family and friends and then you say to yourself it is a great honour and I just hope I'll be worthy of it," he said.
Born the son of a coal merchant in 1927 in Knotty Ash, Sir Ken has been a comedian since 1954.
In the 1960s, he made it into the Guinness Book of Records for telling 1,500 jokes in three and a half hours.
His talent led to shows on the radio and television and a recording career, with his signature tune Happiness released in 1964.
His single Tears was the third highest-selling song of the 1960s in Britain behind, beaten only by two Beatles songs.
He said he has got "the best job in the world" because he only sees happy people... laughing".
He added: "I won't hang my tickling stick up, till I have to."
Entertainer Ken Dodd said he was "highly tickled" as he received a knighthood at Buckingham Palace.