The enigmatic star, who was hailed as the finest character actor of his generation, won an Oscar in 2006 as best actor for "Capote" and was nominated for three further Academy Awards.
A substance thought to be heroin was found at the scene when police responded to the actor's home in Manhattan's West Village after receiving a call from one of his friends.
"It appears to be an alleged overdose," one police official told AFP. The actor was found on the bathroom floor with a syringe in his arm, wearing shorts and a T-shirt, the officer added.
"Two glassine envelopes contained alleged heroin," another officer told AFP. There were no pills and no sign that the actor had been drinking, the first officer had said earlier.
Law enforcement officials refused to comment further until after the arrival and report of the medical examiner.
Hoffman, whose two-decade career made him one of the most liked and respected actors in Hollywood, leaves behind his partner, costume designer Mimi O'Donnell, and three children.
His family released a brief statement through the media saying they were devastated, thanking people for their love and support.
"This is a tragic and sudden loss and we ask that you respect our privacy during this time of grieving. Please keep Phil in your thoughts and prayers," the statement added.
New York detectives and officers secured the street outside the actor's home, and were seen entering and exiting the red brick, six-floor apartment building, an AFP reporter said.
A crowd of journalists and neighbors gathered, and a red rose and a bouquet of white roses were laid at the entrance.
One neighbor who gave her name as Janine, said she was accustomed to seeing the actor and his family out and about.
"They were always in the 'hood," she told AFP. "My husband saw him last week... They were a part of the community here."
Tributes quickly poured in from fellow celebrities and actors, who took to twitter to express their sorrow.
"A truly kind, wonderful man and one of our greatest actors - ever," wrote Mia Farrow.
Born Philip Hoffman in July 1967 in New York state, he was the third of four children of a Xerox executive and a feminist housewife who divorced when he was nine.
He earned a drama degree from New York University in 1989, though he fell into alcohol and drug abuse for a while.
Incorporating his grandfather's name, Seymour, between his given names, he made his big screen debut in a 1991 independent film called "Triple Bogey on a Par Five Hole."
In 1997, he made waves as a closeted gay crew member in Paul Thomas Anderson's porn industry tale "Boogie Nights," followed by a quirky turn in the Coen brothers' "The Big Lebowski" (1998).
In Anthony Minghella's crime thriller "The Talented Mr Ripley," he stole the show from co-stars Matt Damon, Jude Law and Gwyneth Paltrow with his supporting role as slippery and duplicitous preppie Freddie Miles.
The late Minghella once said that Hoffman was an extraordinary actor "cursed, sometimes, by his own gnawing intelligence, his own discomfort with acting".
"There are few actors more demanding in front of camera, less demanding away from it."
But, for all his success, Hoffman was a reluctant occupant of the limelight and in an interview with the Guardian published in October 2011 said he thought everyone struggles with self-love.
"I think that's pretty much the human condition, you know, waking up and trying to live your day in a way that you can go to sleep and feel OK about yourself," he was quoted as saying.
After his Oscar-winning turn in "Capote", Hoffman had three more Oscar nominations as a supporting actor in "Charlie Wilson's War" in 2008, "Doubt" in 2009 and "The Master" in 2013.