The actor was 69.
"He [Rajesh Khanna] is no more," a family friend told the media.
Khanna's health had started deteriorating since April. He even stopped taking food and complained of exhaustion and weakness.
He was admitted to the Lilavati Hospital on July 14 following "weakness", and was discharged on Monday. His family - estranged wife Dimple Kapadia, daughters Twinkle and Rinke were by his side.
His actor son-in-law Akshay Kumar, Twinkle's husband, also rushed back from shooting abroad to be with him.