Lance Corporal Liam Tasker, 26, was shot by insurgents on March 1 last year while on patrol in Helmand Province with his dog Theo, who died of a seizure shortly afterwards.
The pair, who were said to have been inseparable, detected a record 14 Taliban roadside bombs and weapons caches in five months, and are believed to have saved countless lives.
Their role was to provide search and clearance support, uncovering hidden weapons, improvised explosive devices and bomb-making equipment.
Springer spaniel Theo was awarded the PDSA Dickin Medal, known as the animals' Victoria Cross, at Wellington Barracks, London.
The award is said to be the highest accolade any animal can receive in recognition of devotion to duty in saving human life while serving in military conflict. It was established by the veterinary charity's founder, Maria Dickin, in 1943.
L/Cpl Tasker, from Tayport in Fife, served in The Royal Army Veterinary Corps, 1st Military Working Dog Regiment.
His mother, Jane Duffy, described Theo as her son's "best mate" and said they were together "24/7" in Afghanistan.
She went on: "Liam got his mention in dispatches, so it's lovely that Theo is getting his PDSA Dickin Medal and he's being recognised for his bravery as well.
"They'll be watching us and they'll be so proud. I just wish they were here to get it themselves. Theo and Liam saved so many lives out there."
Theo made the most confirmed operational finds by any arms and explosives search dog in Afghanistan to date.
On one occasion, he is said to have discovered an underground tunnel leading to a room in which insurgents were suspected of making bombs and hiding from coalition forces.
The award was accepted by Sergeant Matthew Jones - who served alongside L/Cpl Tasker - and search dog Grace.
Sgt Jones said his friend was "a full of life guy". He went on: "Throughout the time I knew him he was the consummate professional. When he teamed up with Theo it seemed a match made in heaven. Their teamwork was ultimately professional but mostly fun. That was the way they worked."
Sgt Jones added that military dogs enjoy working in Afghanistan.
"The dogs love it. It's quite weird to say because a lot of soldiers have their pressures. But the dogs are out there for their handler and they just want to have fun," he said.
Colonel Neil Smith, director of the Army Veterinary and Remount Service, also paid tribute to L/Cpl Tasker and Theo.
"This impressive team undoubtedly prevented many soldiers and civilians being killed or injured.
"This award recognises not only a very special dog, but also the contribution that all our dog teams make in detecting improvised explosive devices (IEDs) and weapons caches," he said.
PDSA director general Jan McLoughlin added that today's ceremony was a "fantastic way to recognise the work that Theo did whilst he was on duty".