The music director, who created history by becoming the first Indian to win two Oscars his composition in 'Slumdog Millionaire', was honoured during the convocation function at the university.
Noted Urdu writer Gopi Chand Narang was also awarded with an honorary degree.
Rahman, in his acceptance speech, called upon the members of the Muslim community, specially the youths, to analyse as to what has gone astray in the world of Islam in present times.
"It is ironical that what the west calls the dark ages was one of the brightest spots in the history of Islam. Sadly the picture has changed today. Muslims are no longer perceived at the forefront of humanity's quest for progress and development," the music director said.
Urging Muslim youths to have a fresh vision for the future, he said "We need to bring back the thirst for knowledge in our lives."
He said that youths should work to build a strong and harmonious India.
"With the AMU I share a vision that embraces diversity that each person can bring to the progressive development of our world," Rahman said.
The AMU awarded PhD degrees to 291 students, while 1,490 students received their master degrees and 251 students got bachelor degrees during the convocation function.
The varsity also presented 43 gold medals and 160 university medals.
West Bengal Governor Gopalkrishna Gandhi, who was the Chief Guest at the function, said the AMU is "historically placed" and should work for bridging the gap between the people of India and Pakistan.
"AMU with its amazing alumni, who have influenced history and its present and future generations have a clear role to play. The AMU is historically placed in a unique position to bridge the gap between the people of India and Pakistan," Gandhi said.
He said the university can "enable, enrich and strengthen India to give the world a unique lead. The AMU can help the people of India and Pakistan by drawing clear lines between the perpetrators of hatred and violence representing the Taliban on one hand and the masses of India and Pakistan on the other hand."
He said that the university should strive to play an important role in empowering the deprived sections of the society including women.
In his address, AMU Vice Chancellor Prof P K Abdul Azis said that a national legislation should be enacted to define the meaning of terms like minority and minority status.