The incident west of Scalloway happened on board the Ballantrae-registered scallop boat King Challenger.
His crewmates managed to get him out of the water on Thursday. A Coastguard rescue helicopter then transferred him to Gilbert Bain Hospital, but he could not be saved.
The Marine Accident Investigation Branch will look into the death.
An inquiry has been launched into the death of a man who fell overboard from a fishing boat off Shetland.