News of her death was confirmed by a military spokesman and
members of her Pakistan People's Party (PPP).
Ms Bhutto had just addressed a pre-election rally in the town of
Rawalpindi when the attack occurred.
At least 15 other people are reported killed in the attack and
several more were injured. Ms Bhutto had twice been the country's
prime minister.
She had been campaigning ahead of elections due in January.
The BBC's Barbara Plett says the killing is likely to provoke an
agonised response from her followers, especially from her loyal
following in Sindh Province.
Ms Bhutto was key to her party, she was the focus of her party and
she was a major political player amongst all those fighting for
seats in the forthcoming elections, our correspondent adds.
The PPP has the largest support of any party in the country.
Analysts note that Rawalpindi, a garrison city, is seen as one of
the country's most secure cities, making the attack even more
embarrassing for the military authorities.
Scene of grief
The explosion occurred close to an entrance gate of the park in
Rawalpindi where Ms Bhutto had been speaking.
Wasif Ali Khan, a member of the PPP who was at Rawalpindi General
Hospital, said she died at 1816 (1316 GMT).
The blast caused carnage
Supporters at the hospital began chanting "Dog, Musharraf, dog",
referring to President Pervez Musharraf, the Associated Press (AP)
reports.
Some broke the glass door at the main entrance to the emergency
unit as others wept.
A man with a PPP flag tied around his head could be seen beating
his chest, the agency adds.
An interior ministry spokesman, Javed Cheema, was quoted as saying
by AFP that she may have been killed by pellets packed into the
suicide bomber's vest.
However, AP quoted a PPP security adviser as saying she was shot in
the neck and chest as she got into her vehicle, before the gunman
blew himself up.
Return from exile
The killing was condemned by the US and Russia, and a statement is
expected shortly from the UK.
"The attack shows that there are still those in Pakistan trying to
undermine reconciliation and democratic development in Pakistan," a
US state department official said.
Russia's foreign ministry condemned the attack, offered condolences
to Ms Bhutto's family and said it hoped the Pakistani leadership
would "manage to take necessary steps to ensure stability in the
country".
Ms Bhutto returned from self-imposed exile in October after years
out of Pakistan where she had faced corruption charges.
Her return was the result of a power-sharing agreement with
President Musharraf in which he granted an amnesty that covered the
court cases she was facing.
Since her return relations with Mr Musharraf had broken down.
On the day of her return she led a motor cavalcade through the city
of Karachi. It was hit by a double suicide attack that left some
130 dead.
Earlier on Thursday at least four people were killed ahead of an
election rally that Pakistan's former Prime Minister Nawaz Sharif
was preparing to attend close to Rawalpindi