Simoncelli was fighting for fourth with Alvaro Bautista when he lost the front of his bike and slid across the circuit, into the path of Colin Edwards and Valentino Rossi, both of whom then hit the Honda.
Simoncelli lay stricken on the track after the crash, his helmet having come off during the incident.
He was taken by ambulance to the circuit's medical centre, but at 4.56pm local time it was announced he had succumbed to his injuries.
The death was the first fatality in MotoGP since Daijiro Katoh, also a Gresini rider, who passed away as a result of injuries sustained in the 2003 Japanese Grand Prix. The last fatal accident in the world championship series came when Moto2 rider Shoya Tomizawa was killed at Misano in September last year.
Simoncelli had established himself as one of the most exciting new stars in MotoGP this season, his second year at the top level with the Gresini Honda team.
A former European 125cc champion, Simoncelli was a race winner and frontrunner during three years in world championship 125cc racing before coming to the 250cc series in 2006.
He spent four seasons with the Gilera team, with the breakthrough coming in 2008 when he not only became a winner for the first time, but charged to the title, beating Alvaro Bautista.
Simoncelli stayed on in 250cc to defend his title in 2009, although he narrowly lost the crown to future Gresini MotoGP team-mate Hiroshi Aoyama after an early-season injury left him playing catch-up.
He secured a MotoGP seat with Gresini for 2010 and became ever more competitive as his rookie season went on.
That earned him a factory specification Honda this season, and he took full advantage to get among the frontrunners from the outset.
Pole positions at Catalunya and Assen came amid a run of six straight front row starts, although incidents in races meant he could not deliver the results his speed promised - and led to rows with other riders.
But Simoncelli calmed his style as the season progressed, finally taking his maiden MotoGP podium at Brno, and achieving a career-best second in Australia just a week ago. He had also secured works Honda equipment again with Gresini next season, ensuring he would have started 2012 as a potential MotoGP winner.
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