Baghdad Bounedjah stunned Senegal with a shot which took a wicked deflection off a defender and looped over the bewildered goalkeeper Alfred Gomis and into the net.
Algeria sat back after that and the first half turned into a scrappy, bad-tempered affair as Senegal, who have never won the title, failed to threaten their defence.
Senegal were awarded a penalty for handball in the second half but the decision was revoked following a VAR review.
Ismaila Sarr missed Senegal’s best chance by volleying wide from inside the area.
Algeria last won the AFCON in 1990, beating Nigeria 1-0 to lift their first AFCON title.
The News Agency of Nigeria (NAN) reports that Nigeria had earlier won the third place match on Wednesday, beating Tunisia to pick the bronze medal.