North Korea's state news agency called the dead leader's son, Kim Jong Un, the "great successor."
The official North Korean news agency said Kim "passed away from a great mental and physical strain."
His son, Kim Jong Un, will now step into power of the nuclear-armed country.
Kim Jong Il has led N. Korea since 1994, after his father, Kim Il-Sung, died.
North Korean leader Kim Jong-Il has died at 69 of a heart attack, state media announced Monday, plunging the nuclear-armed and deeply isolated nation into a second dynastic succession.
Pyongyang urged people to rally behind Kim's youngest son Jong-Un, describing him as the "great successor" to the leader who presided over a famine that saw hundreds of thousands die, but still built an atomic arms arsenal.
State television, which delivered the shocking news in a tearful announcement from a female news reader, aired footage of hysterical North Koreans, young and old alike, pounding the ground in a display of abject grief.
South Korea put its military on emergency alert but urged its people to stay calm, and swiftly closed ranks with its close ally the United States. Analysts said there would likely be little turbulence in the North -- at least for now.
Neighbouring China and Russia, both influential players in Pyongyang, sent their condolences and observers said Beijing would beef up its all-important patronage to prevent an implosion in the communist North.
There was wariness about where North Korea goes now under Kim Jong-Il's son, but Britain, France and Germany voiced tentative hope for a new dawn at the end of a tumultuous year that has seen regimes topple across the Middle East.
The "Dear Leader", according to the official Korean Central News Agency (KCNA), "passed away from a great mental and physical strain" at 8:30 am on Saturday (2330 GMT Friday) while travelling by train on one of his field trips.
It urged people to support the Swiss-educated Kim Jong-Un, who is in his late 20s and was last year made a four-star general and given top ruling party posts despite having had no public profile.
"All party members, military men and the public should faithfully follow the leadership of comrade Kim Jong-Un and protect and further strengthen the unified front of the party, military and the public," the female announcer, clad in black, said on television.
KCNA said Kim died of a "severe myocardial infarction along with a heart attack". He suffered a stroke in August 2008 which triggered an acceleration in the succession plans.
Kim's funeral will be held on December 28 in Pyongyang but no foreign delegations will be invited, KCNA said. National mourning was declared until December 29.
"We must hold high the flag of songun (military-first) policy, strengthen military power a hundred times and firmly defend our socialist system and achievement of revolution," it said.
North Korea's propaganda machine has rolled into action to build up the same personality cult for Jong-Un that surrounded his father and late grandfather Kim Il-Sung, the founder and "eternal leader" of North Korea who died in 1994.
"The North's top guys have already sorted out everything and the regime seems to be stable under the new leadership," said Paik Hak-Soon of Seoul's Sejong Institute.
"I don't expect any major turbulence or power struggle within the regime in the foreseeable future.
"The Kim Jong-Un era has already started."
Kim Jong-Il's only sister Kim Kyong-Hui and her husband Jang Song-Thaek, the country's unofficial number-two leader, are expected to act as the younger Kim's mentors and throw their weight behind the son's leadership.
Analysts stressed that North Korea was entering an uncertain period, although its senior figures were likely to stick closely together for now.
"The North Korean elite has a vested interest in maintaining the system and will assess Jong-Un's ability to protect its interests," said Bruce Klingner, a Northeast Asia expert at Washington's Heritage Foundation.
South Korea summoned a meeting of the National Security Council and President Lee Myung-Bak called an emergency cabinet meeting.
The Joint Chiefs of Staff said it had increased monitoring along the border along with US forces in the country but had detected no unusual activity.
North and South Korea have remained technically at war since their three-year conflict ended only in an armistice in 1953. The United States stations 28,500 troops in the South.
Lee and US President Barack Obama were quick to talk by telephone after Kim's death was announced at noon (0300 GMT), officials said.
A White House statement said: "The president reaffirmed the United States' strong commitment to the stability of the Korean peninsula and the security of our close ally, the Republic of Korea."
Japan, Korea's former colonial ruler, offered its condolences over the death but also called an emergency security meeting, while Britain said it could be a "turning point" and France hoped that North Koreans could now "find freedom".
The news shocked South Koreans and some expressed fears of renewed conflict.
"I'm worried there will be a war. I thought it wasn't true at first," said student Song Bo-Na, 22.
KCNA, quoting a statement from the national funeral committee headed by Jong-Un, said Kim Jong-Il's body would lie in state in Kumsusan palace where his father's embalmed body is on display.
Kim took over after his father and founding president Kim Il-Sung died in 1994, coming to power with a reputation as a playboy who revelled in the high life.
But in the mid- to late-1990s he presided over a famine which killed hundreds of thousands of his people. Severe food shortages continue and the UN children's fund estimates one-third of children are stunted by malnutrition.
Kim still found the resources to continue a nuclear weapons programme which culminated in tests in October 2006 and May 2009. The country is believed to have a plutonium stockpile big enough for six to eight weapons.
Pyongyang test-fired a short-range missile off its east coast on Monday, South Korea's Yonhap news agency said, but quoted an unnamed government official as saying it was unrelated to the announcement of Kim's death.
Such test launches are relatively common in the North, which has an arsenal of chemical and conventional weapons including thousands of short- and medium-range missiles.