British-born Hetherington was killed in Misrata, the only rebel-held city in western Libya, according to his publicist.
Hetherington was covering the battles between rebels and Libyan government forces.
The circumstances of the incident were unclear. A statement from Hetherington's family said he was killed by a rocket-propelled grenade.
Chris Hondros, a New York-based photographer for Getty Images, was also killed. Two other photographers were wounded.
Hetherington tweeted Tuesday: "In besieged Libyan city of Misrata. Indiscriminate shelling by Qaddafi forces. No sign of NATO."
"Tim was in Libya to continue his ongoing multimedia project to highlight humanitarian issues during time of war and conflict," Hetherington's family said in a statement. "He will be forever missed."
At the Oscars in February, his red carpet guests included soldiers he had profiled in his documentary about U.S. troops in Afghanistan.
The Associated Press contributed to this report.