Paley, who had battled breast cancer, died Wednesday at her home in Thetford Hill, Vt., according to her husband, playwright Robert Nichols.
"She was a great writer," said Jonathan Galassi, president of Farrar Straus & Giroux, which is about to publish a book of new Paley poetry. "Her sense of the vernacular of the particular world she came from was just wonderful. She was able to capture the humor and pathos in a certain New York voice."
A published writer since the 1950s, Paley released only a handful of books over the next half century, mostly short stories and poems. Among her story collections were "Enormous Changes at the Last Minute," 1974, and "Later the Same Day," 1985.
"None of it happened, and yet every word of it is true," she once said of her fiction. "It's truth embedded in the lie."
Paley, a longtime New Yorker, moved to Vermont in 1988 after having spent summers there. She was named state poet laureate in early 2003. "Artists are known for challenging convention," Gov. Jim Douglas said at the time. "Great artists like Grace Paley do that and more."
In many ways, Paley wasn't a typical American writer. Her characters did not suffer "identity crises." Instead of living on the road, they stayed home, in Greenwich Village. They discussed politics, dared to take sides and belonged to clubs anxious to have them as members.
"People talk of alienation and so forth," she said in a 1994 interview with The Associated Press. "I don't feel that. I feel angry at certain things, but I don't feel alienated from it. I feel disgusted with it, or mad, but I don't feel I'm not in it."
She was a child of immigrants who seemed to embody a more intimate time, the kind of person strangers at readings would call by her first name. Short and heavyset, she had a round, open face, a warm smile and a friendly disarray of hair.
Her voice was small and surprisingly girlish, with every thought seeming to occur to the speaker only at the moment she expressed it.
Born Grace Goodside in New York in 1922, she was one of three children of Russian Jews. Her family spoke English, Russian and Yiddish, but politics proved the universal language. Her parents had opposed the czar in Russia and were supporters of the New Deal. The bitterest neighborhood feuds were not among drug dealers, but between Trotskyites and Stalinists.