The charismatic politician, renowned for his love of beer and cricket, served from 1983 to 1991 and is credited with modernising the economy.
He was the centre-left Labor Party's longest-serving PM, who achieved the highest approval ratings of any leader.
He died "peacefully at home", his wife said in a statement.
"Today we lost Bob Hawke, a great Australian - many would say the greatest Australian of the post-war era," Blanche d'Alpuget added.
Mr Hawke joined the Labor Party at the age of 18 in 1947 and would go on to win a Rhodes Scholarship to the University of Oxford in 1953.
He later joined the trade union movement, rising to become president of the Australian Council of Trade Unions by 1969.
He first won a seat in parliament in 1980 and became Labor leader in 1983. He and Labor won a general election by a landslide soon after.
Mr Hawke was known for his maverick style and will be remembered as Australia's "larrikin" leader - the prime minister who loved a drink and joke, and made the serious work of politics look like fun.
He set a world record for drinking a yard (1.4l) of beer in 11 seconds while at Oxford University, and he would still perform his party trick of downing a glass of beer at cricket matches well into his late 80s.
He cried publicly a number of times - most famously in 1989 at a memorial service at Parliament House following the crackdown on Chinese students at Beijing's Tiananmen square.
He was known for his concern for Australia's vulnerable, once declaring that he wanted to create a country where there were "no second-class Australians". He created Australia's universal healthcare system, Medicare.
But he is also lauded by many for making radical market reforms, including floating the Australian dollar.