The British-born, Melbourne-raised performer died peacefully in her sleep at her home in California, according to a social media post from husband John Easterling. She was 73 years old.
The singer and actress, who is best known for her role alongside John Travolta in the smash movie musical Grease, had endured a recurring battle with breast cancer.
Travolta was among the first to pay tribute to his former co-star, posting on Instagram: "My dearest Olivia, you made all of our lives so much better. Your impact was incredible. I love you so much."
However the impact of Newton-John's passing also hit hard in Australia on Tuesday.
Kylie Minogue, whose career path followed that of Newton-John with her elevation to international fame from humble beginnings in Melbourne, said on Twitter: "Since I was 10 years old, I have loved and looked up to Olivia Newton-John. And, I always will.
"She was, and always will be, an inspiration to me in so many, many ways."
Hollywood actor Hugh Jackman described Newton-John as his "first crush".
"One of the great privileges of my life was getting to know her," he wrote on Instagram.
"Not only was she one of the most talented people I've known … she was one of the most open hearted, generous and funny. She was a one-of-a-kind spirit.
"I kissed her (poster) every night before bed. Her legacy will only grow stronger in the years to come. A fighter for healing from cancer that knows no bounds. I love you Olivia."
Singer Delta Goodrem, who played Newton-John in a 2018 biopic, wrote on Instagram that the star was both a mentor and friend.
"The whole world will feel this heartbreak today because the entire world felt Olivia's unmatched light," she said.
"I don't have all the words I would like to say today, but I hope everyone will join in celebrating our beloved Olivia, her heart, soul, talent, courage, grace ... I love you forever."
Deputy Prime Minister Richard Marles told ABC radio it was a "really sad day for Australia".
"I think for people of my generation who grew up with Grease, it's one of these moments where you feel like an era has come to an end and the world is a little emptier," he said.
Debbie Sheill, director of the Olivia Newton-John Cancer Research Centre in Melbourne, said it was an especially sad day for everyone involved in the facility.
"It is because of her that the centre is here," she told ABC TV.
"This was her dream and this was her legacy, and ... something she was really proud of."
Victorian premier Daniel Andrews said Newton-John's generosity had saved lives and her advocacy had given people hope.
Newton-John was admitted to the Australian Recording Industry Association Hall of Fame in 2002 and made a Companion of the Order of Australia in 2019.
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