The 61-year-old, who was diagnosed with the killer illness in 2001, died at his home in Uddingston, Lanarkshire.
The star became an active campaigner for stem cell research into motor neurone disease.
Tributes flowed in from former teammates, politicians and rival fans following the news of the player's death.
His son James Johnstone, 35, said: "My dad passed away at 6am this morning. It hasn't even begun to sink in yet for the family."
Johnstone, who lived with his wife Agnes, 59, was an integral part of the Celtic side which won nine consecutive Scottish League titles between 1965 and 1974.
But he was perhaps best known as one of the legendary Lisbon Lions, the Celtic team which became the first British side to lift the European Cup in 1967.
The wing wizard scored 129 goals in 515 appearances for Celtic and won 24 caps for Scotland.
First Minister Jack McConnell led the tributes today.
Sparking after attending a Scottish team reception in Melbourne, Australia, for the Commonwealth Games, he said: "Jimmy Johnstone was an inspirational footballer, a real Scottish hero, who always played with pride and passion. He will be a great loss to the footballing community and to Scotland as a whole."
Billy McNeill, 66, who captained the Lisbon Lions to victory,
said: "This is a very sad day for myself and all his family and for the game and Scotland.
"We all had so much admiration for this wee man. He faced up to this illness the way he faced up to everything in his life - head on.
"He campaigned for stem cell research knowing any cure would come too late for him just so other people could get some relief. The world has lost a fantastic man."
Mr McNeill said he was going to the player's home in Lanarkshire to comfort his family.
"Jimmy was a brave, powerful little man, a magnificent player with unrivalled courage. He was an absolutely fabulous player," he added. "Over his career this wee man produced some of the most magnificent performances ever seen in the game. We won't see a man like him again."
Tommy Gemmell, who also played in the Lisbon Lions team, added: "He fought motor neurone disease with great courage. He stood up to it well.
"He was deteriorating physically but he's at peace now. He had the heart of a lion and the ability of a maestro."
Hibs legend Jackie McNamara, who played alongside Jinky at Celtic in the 1970s, said he remembered Johnstone as the best footballer he ever played with.
He said: "I was signed to Celtic from 1971 to 1976 and I remember Jinky as a wonderful wee man, always cheery. As a footballer he was the best I've played with.
"He was a wonderful player and man, who didn't deserve to suffer the way he did."
He added: "The memory which most sticks out in my mind is the way he played against Atletico Madrid in 72 or 73.
"I was a reserve and saw him get his legs cut to shreds by tackles, but he just got up and took it. He played on."
Born in September 30, 1944 in Viewpark, Lanarkshire, Johnstone's talent was evident from an early age. and he was playing for the Celtic youth team by the time he was 13.
Celtic signed him in 1961 after Manchester United expressed an interest and he made his competitive debut two years later against Kilmarnock.
Johnstone became a first team regular in 1965 after the legendary Jock Stein took over as coach at Parkhead. The fiery redhead's temperament sometimes led to run-ins with Stein but the former Hibs manager knew how to motivate him.
Johnstone's fear of flying was once famously exploited by Stein to Celtic's advantage in a European Cup match at Parkhead.
The coach told Johnstone he would not have to fly out for the second leg against Red Star Belgrade if he helped create enough of a lead in the home game.
Johnstone scored twice and helped create three of the five goals Celtic chalked up.
At just 5ft 4in and weighing nine-and-a-half stone, the wing wizard was known affectionately to the Parkhead faithful as "the Wee Man".
He was once dubbed the "Flying Flea" by the French press after an inspired display against Nantes in a European Cup tie.
But the highlight of his career was when Celtic came from a goal behind to defeat Inter Milan 2-1 in the European Cup final.
After leaving Parkhead, he played for San Jose Earthquakes, Sheffield United, Dundee, Shelbourne and Elgin City before retiring from football.
He was diagnosed in November 2001 with motor neurone disease which gradually confined him to his home.
Johnstone was an active campaigner for stem cell research, and recorded a charity cover of the Pogues classic Dirty Old Town with Jim Kerr of Simple Minds in 2003 to raise awareness of the condition.
His debilitating illness robbed him of the use of his limbs and by January 2005, he was too ill to attend the wedding in Gretna of his son, James, a joiner.
Just last week, by which time he could no longer speak, it emerged that he had been denied the chance to receive a potentially life-saving drug by Glasgow's Southern General Hospital.
Doctors refused to prescribe him Copaxone which has been used to successfully treat MND sufferers in America because they feared it may do him harm.
In 2002 Johnstone was voted Celtic's greatest-ever player in a poll among the club's fans. A documentary about his life, Lord of the Wing, was released in 2004.
A year later he became the first living person since the time of the Russian Tsars to have a Faberge egg designed in his honour. Dr Kirstine Knox, chief executive of the Motor Neurone Disease Association, said they were "saddened" to hear of Johnstone's death.
She said: "Since his diagnosis Jimmy has done so much to raise the profile of motor neurone disease and to raise money to support people with the disease.
"MND is a cruel and devastating condition and kills three people every day in the UK. Sadly Jimmy's case is not unusual, most people die within two to five years of developing the disease.
"Our thoughts and best wishes go out to Jimmy's friends and family."
Glasgow Lord Provost Liz Cameron said: "Jinky's death, after a tremendously brave battle against an awful illness, will be mourned not just in Glasgow, but in cities and towns all across the world."
• MOTOR neurone disease (MND) is a deadly and rare condition which is caused by the breakdown of the nerve cells in the brain that control the muscles.
Around 85 per cent of those diagnosed with MND, including Jimmy Johnstone, suffer from a form of the disease called amyotrophic lateral sclerosis (ALS). ALS is usually diagnosed between the ages of 50 and 70 and around 5000 people in the UK are affected.
The cause of the disease is not known and there is no cure. Most patients die within five years of diagnosis.
The exception is physicist Stephen Hawking, who unusually has live with ALS for more than 30 years.
It affects patients' ability to move their muscles while their brain remains unaffected.
The first signs of MND include feeling tired, being clumsy and having a weak grip.