His wife, actress Dimple Kapadia, and two daughters were at his bedside when he died at his home in Mumbai, said his son-in-law, Akshay Kumar, also an actor.
Khanna began his career in the mid-1960s in romantic films that were hugely popular. He played the lead in some 120 of the 170 movies he appeared in and won scores of awards.
His enormous success was a new phenomenon in India. Screaming fans surrounded him whenever he appeared in public. Women married his photograph and wrote him letters in their blood proposing marriage.
He was born Jatin Khanna on Dec. 29, 1942, in the northern Indian town of Amritsar. He took to acting while in school and adopted the name Rajesh Khanna when he began his career in films.
After his early success he became a favorite with film directors wanting a sure box office winner. During the 1970s he had 15 consecutive movies that set new sales records. He was feted as the king of romance and mobbed by hysterical fans, who kissed his car when they couldn't get near him.
"Khanna witnessed unbelievable popularity, such that no one had ever seen or imagined. In fact from 1969 to 1973, it was a one-horse race," said Javed Akhtar, a screenwriter and poet.
In 1973, Khanna surprised his millions of fans by marrying Kapadia, a young and upcoming actress. The couple had two daughters, but the marriage was short-lived. Kapadia complained of his mood swings and bad temper when she moved out with her daughters. However, she returned to take care of Khanna after he fell sick two months ago.
After a nearly three-decade reign in Bollywood, Khanna's popularity dimmed when action films became the rage and younger stars rose to the top.
As his career in films faded, he shifted to politics and was elected to Parliament in 1992 and served there until 1996.
In Mumbai, large crowds of people gathered outside his house Wednesday as word spread that his condition was worsening.
As news of his passing became known, the crowds swelled and police had to push back the throng. Film stars and directors who had worked with him visited his home to offer condolences. Prime Minister Manmohan Singh also conveyed his wishes to Khanna's family and fans in a Twitter message.
"It's a terrible day for all of us in the industry," said Banu, a Bollywood actress who acted in nearly a dozen films with Khanna. "He was a very humble person despite his superstar status."