The singer, who was diagnosed with pancreatic cancer last year, was 71.
His charismatic performances - particularly alongside fellow tenors Placido Domingo and Jose Carreras - helped bring a new audience to opera.
Pavarotti had cancer surgery in July 2006 in New York, five months after his last performance. He had not made any public appearances since then.
He underwent five bouts of chemotherapy in the past year, and was admitted to hospital with a fever on 8 August. He was released two weeks later following diagnostic tests.
Fellow tenor Domingo said he had "always admired the God-given glory" of Pavarotti's voice, while Carreras called him "one of the most important tenors of all time".
The Vienna State Opera raised a black flag in mourning, while Modena said it would name its theatre after its famous son.
Manager Terri Robson said in a statement that the tenor died at 0500 local time (0400 BST) on Thursday.
"The Maestro fought a long, tough battle against the pancreatic cancer which eventually took his life," she said.
"In fitting with the approach that characterised his life and work, he remained positive until finally succumbing to the last stages of his illness."
The funeral will be held at Modena Cathedral on Saturday, the city's mayor Giorgio Pighi told Sky TG24 television, according to the AFP news agency.
One of the tenor's doctors, Antonio Frassoldati, told Sky TG24 the singer had been "always totally conscious of the situation, he always sought to fight the disease... and he was very calm".
Pavarotti enjoyed 40 years on the world stage and became one of the world's biggest-selling artists.
His music reached far beyond the usual opera audience, particularly his signature tune Nessun Dorma, from Puccini's Turandot, which became associated with the 1990 football World Cup.
His performances with Domingo and Jose Carerras at this time - in the Three Tenors concerts - were seen around the world.
"We've reached 1.5 billion people with opera," Pavarotti told critics of the shows.
"If you want to use the word commercial, or something more derogatory, we don't care. Use whatever you want."
In a statement from Los Angeles, Domingo said he had fond memories of the Three Tenors shows.
"We had trouble remembering we were giving a concert before a paying audience, because we had so much fun between ourselves," he said.
Nessun Dorma was part of Pavarotti's final performance, at the opening of the Winter Olympics in Turin in February 2006.
Pavarotti was married to his first wife Adua, with whom he had three daughters, for 35 years until they split in 1996.
He then got together with his secretary Nicoletta Mantovani, who was 26 years old at the time. In 2003, they had been due to have twins, but only one survived, a daughter called Alice.
The couple married in a lavish, star-studded ceremony later that year.