The Pope died at 2137 local time (1937 GMT) on Saturday following a series of worsening health problems including heart failure.
Prayers are being said in St Peter's Square, where many thousands of people are gathered to pay tribute.
Polish-born Karol Wojtyla became Pope in 1978, taking a conservative stand on issues like abortion and contraception.
He was the most widely travelled pontiff and visited more than 120 countries during his 26-year papacy.
Pope John Paul II died after suffering from heart and kidney problems and unstable blood pressure.
"The Holy Father died this evening at 2137 in his private apartment," a brief Vatican statement said.
Procedures to be carried out in the event of the death of the Pope has been set in motion, it added.
His death was immediately announced to the crowds gathered on St Peter's Square, and was met with long applause, an Italian sign of respect.
Bells tolled across the city of Rome and many people wept openly.
"Our Holy Father John Paul has returned to the house of the Father," senior Vatican official Archbishop Leonardo Sandri said.
In the Pope's native Poland, people fell to their knees and wept as the news reached them.
His condition deteriorated suddenly on Thursday night with a high fever caused by an infection of the urinary tract.
The infection brought on "septic shock and a cardio-circulatory collapse", the Vatican said in a statement.
The Pope then received the Saint Viaticum, a Catholic rite for the sick and dying.
The Vatican had announced on Friday that though he was gravely ill he had been conscious, lucid and serene.
Millions of Catholics across the world gathered in churches and in the open air to pray for the Pope.
The pontiff had been suffering from breathing troubles, exacerbated by the progress of Parkinson's Disease, an incurable condition from which he had been suffering for nearly a decade.
He appeared briefly at the window of his Vatican apartment on Easter Sunday to bless the faithful, but was not able to speak.
It was the first time during his 26-year pontificate that the Pope had delegated the main Easter ceremonies to his cardinals.
He tried again to speak to the faithful a few days later - a sign of his extraordinarily strong will, correspondents say.
Fall of communism
John Paul's papacy nearly ended in 1981 when he was shot and seriously wounded as he toured St Peter's Square in Rome.
After a long period of recovery he visited and forgave the would-be assassin.
"I... know that it would be equally ridiculous to believe that it was the Pope who brought down communism with his own hands
Memory and Identity"
-Written by the Pope
John Paul's reign saw radical changes in the world including the collapse of communism and the spread of Aids.
Although plagued by ill health throughout the latter part of his papacy he maintained his international schedule and in 2000 made a poignant pilgrimage to the Holy Land.
He also made a final, nostalgic return to his homeland in 2002.
Born Karol Wojtyla in 1920 near Krakow, Poland, John Paul was an excellent sportsman in his youth.