A Dada Saheb Phalke award winner, the 91-year-old acted in more than 250 films, including a few in Tamil.
Nageswara Rao had a lively chat with family members last night and passed away in his sleep, the legendary actor's son Nagarjuna, a popular hero, said.
He was rushed to the super-speciality Care Hospitals at Banjara Hills here in the small hours, where the doctors declared him dead.
Rao, who recently underwent a surgery for intestinal cancer, is survived by three daughters and two sons.
Known for his strong will power and positive attitude, he himself declared his illness to the public last year and appealed to the fans to take it in their stride.
The body of Nageswara Rao was kept at Annapurna Studios, established by him, to enable people to pay their last respects.
Rao, who had a stature on par with late N T Rama Rao, was one of the earliest stars of the black and white era.
Born in Krishna district of Coastal Andhra Pradesh, he started his career as a stage artiste and made his film debut in early 1940s with 'Dharmapatni', in which he acted as a woman.
He went on to give huge hits such as 'Batasari', 'Devadas' and 'Prem Nagar', 'Tenali Ramakrishna', 'Maya Bazaar', 'Missamma' and 'Sitaramayya gari Manavaralu'.
He earned fame for his poignant portrayal of 'Devdas' in the film based on the novel of acclaimed Bengali author Sarat Chandra Chatterjee.
Rao played a pioneering role in shifting the Telugu film industry from Chennai to Hyderabad and established Annapurna Studios, named after his wife, which helped the cause in no small measure.
Several producers recall that he pressed them to shift base to Hyderabad for making films with him.
Rao recently completed shooting for his home production 'Manam' which casts three generations of the family himself, Nagarjuna and his grandson Naga Chaitanya.
In fact, dubbing facilities had been set up at his residence as he wanted to do it himself, family sources said.
Andhra Pradesh Chief Minister N Kiran Kumar Reddy, Opposition leader N Chandrababu Naidu, YSR Congress president Y S Jaganmohan Reddy and several other leaders and film personalities condoled his death.
Several film personalities paid their last respects to the departed soul.