Daniele Emmanuello, 43, was found in a ravine where he apparently fell after trying to flee authorities who were closing in on his hideout, police said.
The ANSA and Apcom news agencies, however, said he had been shot in the back of the head. ANSA quoted unidentified investigators as saying police fired warning shots as they closed in on him, and were not aiming to hit him.
Emmanuello, considered by authorities to be the head of the mob in Sicily's southern port city of Gela, had been on the run since 1996, accused of mafia association, drug trafficking and murder among other things.
Interior Minister Giuliano Amato said he could not rejoice over any death, but said "police forces ...have freed Sicily of one of the most powerful and bloody Mafia fugitives."
Gela's mayor, Giuseppe Crocetta, called Emmanuello an "emerging" boss who was trying to unite four Mafia clans. But he said Emmanuello had become increasingly isolated after several arrests of his underlings and after 80 Gela businessmen agreed to not pay the "pizzo," or extortion fee, charged by the mob.
The "pizzo" has long been one of the Mafia's most lucrative sources of cash, but Sicilian businessmen have recently begun refusing to pay it. The Italian industrialist lobbying group Confindustria recently announced it would kick out any member who pays such "protection" money to Cosa Nostra.
Amato praised what he called the Sicilians' "courage" in rebelling against the Mafia's extortion racket by refusing to pay the pizzo.
"We are with them and we are with all the Sicilians who in these months are demonstrating great determination to rebel against organized crime's oppression," he said in a statement.