Callaghan's family said he died at his home in East Sussex county, south of London.
Callaghan succeeded Prime Minister Harold Wilson in April 1976, in the dying days of Britain's post-World War II consensus politics, and governed until May 1979, when strikes, financial crises and party divisions cost him the election against Margaret Thatcher's Conservative Party.
Callaghan, who entered Parliament as a Labour Party lawmaker in 1945, was the only British politician to hold, at different times, the four posts of prime minister, Treasury chief, foreign secretary and home secretary.
The ascent of "Sunny Jim" to become the country's fourth Labour prime minister took a combination of stamina, unflappability and an instinct for the middle road.
The stooped, bespectacled 6-footer was 64 when he inherited a quarreling party — barely clinging to a parliamentary majority — and an economy battered by double-digit inflation, rising wages and a plummeting pound.
Many saw Callaghan as simply a caretaker, minding the store until the Thatcherites moved in with their free-market, union-bashing doctrines.
Yet in two years, helped by the North Sea oil bonanza and $4 billion in bailout loans, the sterling recovered, inflation retreated to a single digit and most workers voluntarily restrained wage demands.
As Britain returned to the black again, Callaghan approached the 1979 election running neck-and-neck with the Tories.
But in late 1978 the unions, fed up with wage restraints, launched their "winter of discontent." Strikes left bodies unburied, garbage uncollected, trains paralyzed, cancer patients without hospital care and children locked out of classrooms.
Callaghan stuck to his mild-mannered style. Returning from a summit in the Caribbean, he remarked, "I do not feel there is mounting chaos."
But that was not what the public wanted to hear. It wanted strong, decisive government, and the following year Mrs. Thatcher ousted Callaghan with a comfortable majority.
Like Sir Winston Churchill, Callaghan never attended college, saying he took his degree at "The University of Life."
His central themes were to align British interests with Washington rather than Europe and to maintain nuclear deterrence against the Soviets, while working for arms control.
Callaghan enjoyed considerable stature abroad. President Carter and West German Chancellor Helmut Schmidt often consulted him, and Henry Kissinger called him "one of the most underrated people I know. I consider him a truly wise man, a man who grows the longer you know him."
At home he always sought to safeguard the alliance of Labour and its chief financial backers — the unions — and his calm, conciliatory style served him well.
He played the role of no-nonsense leader who talked and lived simply, caring passionately for the poor and sick and doting on his family.
"I am the only politician in the Labour movement who has never been to Harrods (the luxury department store) and who has never attended a tribune (ultra-left) meeting," he once told The Associated Press.
He would take casual strolls through city streets and his downfall in 1979 may have been hastened by his refusal to use professional image-shapers.
Leonard James Callaghan was born March 27, 1912, in the southern port city of Portsmouth to a Catholic father and Baptist mother.
His father died when he was 9, plunging the family into poverty. They received no pension until Labour came into office in 1931 and paid the Callaghans a weekly pension of 10 shillings (then worth about $2).
"After that we were Labour for life," he recalled.
After dropping out of school at 16, he went to work in a tax collection office and became involved in union affairs.
He married teacher Audrey Moulton in 1938.
After naval service in World War II, Callaghan stood for election in Cardiff and was swept in with Labour's landslide majority in 1945. Within two years he was a junior minister.
He loyally obeyed Wilson in refusing to devalue the pound and was proved right. He acceded to Catholic appeals to send the army into Northern Ireland in 1969 to protect them against Protestant mobs, but warned them then: "I can send the army in, but I'll have the devil of a time getting it out again." The troops are still there.
He is survived by a son and two daughters. Funeral details were not immediately available.