The cause of his death has not yet been revealed, although his daughter said he had passed away "peacefully".
Author of many folk songs in the llanera tradition of the Venezuelan plains, his most famous song is Caballo Viejo (Old Horse).
Known as "Uncle Simon", he was widely seen as an ambassador for Venezuelan folkloric music worldwide.
Diaz was awarded a Grammy Lifetime Achievement Award in 2008 for his recording career.
From humble origins, he was known for his poetic and lyrical compositions.
While he strayed into other genres such as boleros and tango, most of his work stayed true to the llanera music style of Venezuela, with its characteristic harp and cuatro, a four-stringed instrument similar to the guitar.
His songs have been sung by opera stars such as Placido Domingo and many other Latin American artists such as Mercedes Sosa and Caetano Veloso.
German choreographer Pina Bausch included some of Diaz's music in her work Nur Du.
Diaz became a TV star, presenting a dozen shows featuring the best of Venezuelan folk music.
One of his most popular shows was a children's music programme broadcast in the 1970s and 80s. His nickname of Uncle Simon dates back to this show.
Diaz stopped appearing in public after being diagnosed with Alzheimer's disease, but his daughter Bettsimar recently showcased her father's legacy in the programme All About My Father.
Venezuelan singer-songwriter Simon Diaz has died at the age of 85, his daughter has announced.