Mali's Culture Ministry said Toure died at his home in the capital, Bamako, after a long struggle with an unidentified illness. His record company, World Circuit Records, said he suffered from bone cancer and died in his sleep.
Toure melded traditional Malian stringed instruments and vocals with the American blues guitar work he considered firmly rooted in West Africa, where most North American slaves were shipped from.
One of the original progenitors of a genre known as Mali Blues, Toure played a traditional Malian stringed instrument called the gurkel.
He was best known overseas for his 1994 collaboration with American guitarist Ry Cooder on "Talking Timbuktu," which netted him his first Grammy.
He won his second Grammy last month, taking traditional world music album honors for his "In the Heart of the Moon" album, performed with fellow Malian Toumani Diabate.
World Circuit Records said Toure had just completed work on a new solo album.
Across this deeply impoverished west African nation, people mourned Toure's passing and radio stations suspended regular programming to broadcast his signature lilting sounds.
"A monument has fallen. With the death of Ali Farka Toure, Mali is losing one of its greatest ambassadors," said Mbaye Boubacar Diarra, a television producer.
"I'm completely in mourning," singer Djeneba Seck said through her tears. "It's as if I lost my father."
Toure was born in 1939 in the northern Sahara Desert trading post of Timbuktu. Like many Africans of his generation, the exact date of his birth was not recorded.
He learned the gurkel at an early age and later took up the guitar. He cited many Western musicians for inspiration, including Ray Charles, Otis Redding and John Lee Hooker.
He once said in an interview that his songs examined education, work, love and society, according to the Web site allmusic.com. He released at least 10 albums and toured often in North America and Europe.
His record company called him "a true original."
"He transposed the traditional music of his native north Mali and single-handedly brought the style known as desert blues to an international audience," the company said in a statement.
Toure spent much of his older age in his childhood town of Niafunke, which has become a pilgrimage spot for many music-loving Africans and tourists.
In 2004, Toure became mayor of the small farming town.
His family said that although no date had yet been determined, he will be buried in the sandy loam near Timbuktu.
"For some people, Timbuktu is a place at the end of nowhere," he once was quoted as saying. "But that's not true. I'm from Timbuktu, and I can tell you that it's right in the center of the world."
By Almahady Cisse