Sehgal had been ill for several days and suffered a heart attack at a city hospital on Thursday evening.
In a career spanning more than seven decades, Sehgal entertained millions of people through her performances in films and on stage.
She began her career with well-known dancer Uday Shankar in 1935 and later performed in the theatre.
Her roles in Bollywood films like Cheeni Kum received extensive praise.
The feisty actress was awarded the Padma Vibhushan, India's second highest civilian award, in 2010 for her work.
Prime Minister Narendra Modi led tributes to the actress on Twitter.
"Zohra Sehgal made a mark through her acting, which is admired across generations. Saddened on her demise," he wrote.
Bollywood star Amitabh Bachchan tweeted:   "What a journey and what an immensely loveable co-star! Prayers for her blessed soul!!"
At 94, Sehgal played Bachchan's mother in hit Hindi film, Cheeni Kum, and critics said the chemistry between the two worked very well.
"A journey of million miles overloaded with smiles. Even at a 100 plus I have yet to meet a naughtier young girlâ€¦..will miss you Zohraâ€¦" tweeted Bollywood star Shah Rukh Khan.
Actress Priyanka Chopra tweeted: "102 and a legacy that will  always be a part of Indian cinema. It was an honour to know #ZohraSehgal and to b a part of films while she was. RIP".
Historian Irfan Habib said Sehgal was a "woman who lived a full life on her own terms...[her passing] is a great loss to art and culture".
Sehgal was born in 1912 in the town of Saharanpur in the northern state of Uttar Pradesh.
She stepped into the world of acting by joining left-wing political theatre group Indian Peoples' Theatre Association (IPTA), which dominated the Indian cultural scene in the 1940s.
She was associated with the doyen of Indian theatre, Prithviraj Kapoor, for more than a decade.
In 1962, Sehgal went to London on a drama scholarship and worked in several English films and popular television productions like My Beautiful Launderette, Tandoori Nights and The Jewel in the Crown.
Sehgal returned to India in the 1990s at the age of 80 and continued acting until the age of 95.
Her most popular Hindi films included Dil Se (From the Heart) and Hum Dil De Chuke Sanam (I Have Given My Heart, Darling).
Tributes have poured in for celebrated Indian actress Zohra Sehgal who has died in the capital, Delhi, aged 102.