His killing marks a huge success for Israel and a pivotal event in the year-long conflict.
There are a number of possible scenarios for what happens next but Israeli Prime Minister Benjamin Netanyahu said the war would go on.
The Israeli military said it had killed Sinwar in an operation in the southern Gaza Strip on Wednesday.
"After completing the process of identifying the body, it can be confirmed that Yahya Sinwar was eliminated," it said.
There was no immediate comment from Hamas, but sources in the militant group said that indications from Gaza suggested Sinwar had been killed in an Israeli operation.
In Israel, families of hostages held by Hamas in Gaza said they hoped that a ceasefire could now be reached that would bring home the captives.
In Gaza, pounded relentlessly by Israeli forces for a year, residents said they believed the war would continue but they still clung to their hope of self-determination.
Netanyahu, speaking in Jerusalem just after the death was confirmed, said Sinwar's death offered the chance of peace in the Middle East but warned that the war in Gaza was not over and Israel would continue until its hostages were returned.
"Today we have settled the score. Today evil has been dealt a blow but our task has still not been completed," Netanyahu said in a recorded video statement. "To the dear hostage families, I say: this is an important moment in the war. We will continue full force until all your loved ones, our loved ones, are home."
Israeli Foreign Minister Israel Katz said: "This is a great military and moral achievement for Israel."
He called Sinwar a "mass murderer who was responsible for the massacre and atrocities of October 7" - the Hamas-led attack on Israel that unleashed the assault on Gaza.
US President Joe Biden said Sinwar's death marked a moment of relief for Israelis while providing the opportunity for a "day after" in Gaza without the militant group in power. He said he would speak soon with Netanyahu to discuss bringing home Israeli hostages in Gaza and "ending this war once and for all."
Kamala Harris, his vice president and Democratic nominee in the U.S. presidential election, told reporters: "Justice has been served."
Sinwar, who was named as Hamas' overall leader following the assassination of political chief Ismail Haniyeh in Tehran in July, was believed to have been hiding in the warren of tunnels Hamas has built under Gaza over the past two decades.
His death could dial up hostilities in the Middle East where the prospect of an even wider conflict has grown. Israel has launched a ground campaign in Lebanon over the past month and is now planning a response to an Oct. 1 missile attack carried out by Iran, ally of Hamas and Lebanon's Hezbollah.
But the demise of the man who planned the attack last year in which fighters killed 1,200 people in Israel and captured more than 250 hostages, according to Israeli tallies, could also help push forward stalled efforts to end the war in which Israel has killed more than 42,000 Palestinians, according to Gaza health authorities.
Israel's Army Radio said the killing had occurred during a ground operation in the city of Rafah in the southern Gaza Strip during which Israeli troops killed three militants and took their bodies.
A ruthless enforcer once tasked with punishing Palestinians suspected of informing for Israel, Sinwar, who was born in 1962, made his name as a prison leader.
He emerged as a street hero in Gaza from a 22-year Israeli jail sentence for masterminding the abduction and murder of two Israeli soldiers and four Palestinians. He then quickly rose to the top of the Hamas ranks. He was dedicated to eradicating Israel.
In Milan, Italy's Foreign Minister Antonio Tajani, speaking just before the death was confirmed, told reporters: "I hope that the disappearance of the Hamas leader will lead to a ceasefire in Gaza."
Israel has killed several commanders of Hamas in Gaza as well as senior figures of Hezbollah in Lebanon, dealing heavy blows to its arch-foes.
Hostages fate
The killing also raises new questions about the fate of the hostages still in Hamas' captivity. Sinwar was involved in negotiations that could have led to their release.
Families of Israeli hostages said that while the killing of Sinwar was a significant achievement, it would not be complete while hostages are still in Gaza.
"We express deep concern for the fate of the 101 men, women, elderly and children still held captive by Hamas in Gaza. We call on the Israeli government, world leaders, and mediating countries to leverage the military achievement into a diplomatic one by pursuing an immediate agreement for the release of all 101 hostages," the Hostages Families Forum said.
Avi Marciano, the father of Noa Marciano, who was held captive by Hamas and killed in captivity, told Israeli broadcaster KAN: "A year after I hugged Noa for the last time, the monster, the one who took her from me, who had the blood of all our daughters on her hands, finally met the gates of hell. A little justice, but no comfort.
"There will be comfort only when Naama, Liri, Agam, Daniela and Karina, our girls' friends, return home."
In Khan Younis in the south of the Gaza Strip, a displaced Palestinian named Thabet Amour told Reuters that the Palestinian fight would continue.
"This is resistance that does not disappear when men disappear. The assassination of Sinwar will not lead to the end of the resistance or to a compromise or surrender and raising the white flag."
Wassim Akhras, who had also fled his home due to Israeli bombardments, said: "I see that this will not stop the war on Gaza unless the Israeli hostages are returned to their families, that will be a sufficient reason to stop the war."
"I don't think things hinge on Yahya Sinwar, someone will come out following Yahya Sinwar, and Hamas will continue."
