The blast happened by an entrance to a park
Earlier reports said Ms Bhutto had only been injured and taken to hospital.
Ms Bhutto had just addressed a pre-election rally in the town of Rawalpindi when the bomb went off.
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 was campaigning ahead of elections due in January.
The explosion occurred close to an entrance gate of the park in Rawalpindi where Ms Bhutto had been speaking.
PPP spokesman Farhatullah Babar initially said that Ms Bhutto was safe. But later he told the BBC that Ms Bhutto had died.
Another member of the PPP, Wasif Ali Khan, told the Associated Press news agency from the Rawalpindi General Hospital: "At 6:16 pm (1316 GMT) she expired."
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 have 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.
The PPP has the largest support in the country.
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.