The verdict was read out in a court in Dhaka after police used tear gas to disperse thousands of her supporters.
Ms Zia, 72, denies misusing international funds donated to a charitable children's trust.
The sentence means she is barred from parliamentary polls due this year. She said the charges were politically motivated.
The case is one of dozens pending against Ms Zia, who has been a rival of Prime Minister Sheikh Hasina for decades.
"Since the court has been able to prove the charges against her and considering her social and physical status, Zia has been sentenced to five years in jail," the judge said.
The opposition leader, wearing a white sari, was led away to jail minutes after the verdict, bdnews24 reported.
"I will be back. Do not worry and be strong," she told weeping relatives, according to the Daily Star.
Ms Zia's son Tarique Rahman was given 10 years in jail in absentia as he is in London. The same jail term was handed down to four of her aides.
Earlier there were clashes between security forces and opposition protesters who had defied security measures to escort the car taking the opposition leader to court.
Several police officers were injured in the violence a few kilometres from the court, reports said.
The trial against Ms Zia centred around $252,000 (£182,000) intended for an orphanage trust set up when she was prime minister.
There was heavy security for the verdict. Photo Credit : AFP
The charges against her had already led to her boycotting elections in 2014, which triggered widespread protests at the time.
For Thursday's verdict there was heightened security across the capital and other cities. Many shops and schools were shut, reports said.
According to Ms Zia's Bangladesh Nationalist Party (BNP), hundreds of its supporters were arrested in the run-up to the verdict.
Ms Zia and her supporters say the charges are politically motivated. Photo Credit : AFP
Ms Zia when she was in power. Photo Credit : AFP
Ms Zia denies the charges against her. Photo Credit : AFP