The 20-year-old man, who has not been named, is said to have fallen about 100 metres (300ft) at Wentworth Falls, west of Sydney, after slipping from rocks.
His body has now been recovered following a search by rescue crews and a police helicopter, New South Wales Police said.
Wentworth Falls, in the Blue Mountains, is a popular beauty spot.
New South Wales police said the man, who was on holiday in Australia, was in a group of eight friends and had travelled from Sydney's Bondi area to the Blue Mountains for a picnic and a walk along a bush trail.
He was walking with friends at Wentworth Falls when he slipped at midday local time on Sunday.
His friend called for help and police, ambulance and rescue teams arrived at the scene but were unable to reach his body due to high winds.
At 20:00 local time a team of rescue squad officers arrived at the scene and worked with a police helicopter to winch out the man's body.
A police spokeswoman said: "The location is extremely rugged and difficult to access, despite the rescue crew being very experienced."
His family and the British Consulate in Australia were notified of his death on Sunday night and a report will be prepared for the coroner, police said.
The Foreign Office said it was aware of the death of a British national in New South Wales on Sunday and was providing consular assistance to his family.
The Blue Mountains national park is a World Heritage site and covers a million hectares, with huge cliffs, deep rainforest gulleys, sandstone canyons and waterfalls.
A British tourist has died in Australia after falling from the top of a waterfall.