On March 8, 1997, Wallace attended a Soul Train Awards after-party hosted by Vibe and Qwest Records at the Petersen Automotive Museum in Los Angeles, California. Guests included Evans, Aaliyah and members of the Bloods and Crips gangs. With over 2,000 people overcrowding the venue, fire marshals shut it down at 12:35 a.m. on March 9. After taking a few photos, Wallace and his crew headed downstairs to the Chevrolet Suburbans they had rented from Budget Rent a Car. He traveled in the front passenger seat alongside associates Damion "D-Roc" Butler, Lil' Cease, and driver Gregory "G-Money" Young. Combs traveled in the other Suburban with three bodyguards. The two trucks were trailed by a Chevrolet Blazer carrying Bad Boy director of security Paul Offord.

Soon after Wallace's Suburban stopped at the red light, a black Chevrolet Impala pulled up to the right side of the car Wallace was in. The Impala's driver, described as an unidentified African-American man in a blue suit and bow tie, rolled down his window, drew a 9-millimetre (0.35 in) blue-steel pistol, and fired at Wallace's vehicle. Wallace was struck by four bullets. His entourage rushed him to Cedars-Sinai Medical Center, where an emergency thoracotomy was performed, but he was pronounced dead at 1:15 a.m. He was twenty-four years old. An autopsy report, released fifteen years after his death, revealed that only the final shot proved fatal. The bullet entered through his right hip, damaging his colon, liver, heart, and left lung before coming to rest in his left shoulder.

Wallace's funeral was held at the Frank E. Campbell Funeral Chapel in Manhattan on March 18. There were more than 350 mourners at the funeral, including Lil' Cease, Queen Latifah, Flavor Flav, Mary J. Blige, Lil' Kim, Run-D.M.C., DJ Kool Herc, Busta Rhymes, Salt-N-Pepa, DJ Spinderella, Foxy Brown, and Sister Souljah. David Dinkins and Clive Davis also attended the funeral. After the funeral, his body was cremated at the Fresh Pond Crematory in Fresh Pond, Queens, and the ashes were given to his family.

Sixteen days after his death, Wallace's second studio album, Life After Death, was released on March 25, 1997. The album achieved four-time platinum certification and became the highest-selling release of the year, tying with MC Hammer's Please Hammer Don't Hurt 'Em as one of the best-selling rap albums at the time. Life After Death debuted at No. 1 on the Billboard 200. It had briefly appeared earlier at No. 176 due to street-date violations. The follow-up single of "Hypnotize", "Mo Money Mo Problems", featuring Combs and Mase, became Wallace's biggest chart success, reaching No. 1 on the Billboard Hot 100, making him the first artist to achieve two posthumous No. 1 singles. The third single, "Sky's the Limit", featuring the band 112, featured a Spike Jonze-directed video with children portraying Wallace and his contemporaries, including Combs, Lil' Kim, and Busta Rhymes. In December 1997, Spin named Wallace Artist of the Year, with "Hypnotize" as Single of the Year.

In mid-1997, Combs released his debut album, No Way Out, which featured Wallace on five tracks, including the single "Victory". The album's most second track, "I'll Be Missing You", featuring Combs, Evans, and 112, was dedicated to Wallace's memory. At the 1998 Grammy Awards, Life After Death and its first two singles—"Hypnotize" and "Mo Money Mo Problems"—received nominations in the rap category. Combs' No Way Out won Best Rap Album, while "I'll Be Missing You" won Best Rap Performance by a Duo or Group, where Wallace’s "Mo Money Mo Problems" was also nominated. In December 1999, Bad Boy Records released Born Again, an album featuring previously unreleased material from Wallace, mixed with new guest appearances from artists he had not collaborated with during his lifetime, including Eminem and Missy Elliott. It spawned two singles: "Dead Wrong" and "Notorious B.I.G.", released on October 26, 1999, and December 11, 1999, respectively. "Notorious B.I.G." peaked at No. 82 on the Billboard Hot 100.

Wallace featured on Michael Jackson's album Invincible, providing lead vocals for the track "Unbreakable", which was released on October 30, 2001. Wallace's vocals appeared on Ashanti's "Unfoolish" in 2002, and the track "Runnin' (Dying to Live)" with Shakur in 2003. Duets: The Final Chapter, a remix album, was released on December 20, 2005, which spawned the singles "Nasty Girl" and "Spit Your Game". "Nasty Girl" features Combs, Nelly, Jagged Edge and Avery Storm, and "Spit Your Game" includes guest appearances from Krayzie Bone, Twista, and 8Ball & MJG. The album peaked at No. 3 on Billboard 200, while "Nasty Girl" peaked at No. 44 on the Hot 100. Combs and Voletta both stated Duets: The Final Chapter would be the last album primarily featuring new material. A co…

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Wallace had the vocal range of a baritone. He typically rapped in a deep tone that Rolling Stone described as a "thick, jaunty grumble", which became even deeper on Life After Death. Wallace was frequently joined by Combs, who contributed ad libs to his tracks. The Source's "Unsigned Hype" column described his style as "cool, nasal, and filtered, blessing his own material". AllMusic noted Wallace’s talent for layering multiple rhymes in rapid succession, while Time magazine highlighted his ability to deliver multi-syllabic rhymes smoothly. Scholar Adam Krims described his rhythmic style as "effusive". Wallace often used onomatopoeic sounds, like "uhhh" at the start of tracks such as "Hypnotize" and "Big Poppa".

Lateef of Latyrx described Wallace as having "intense and complex flows", while Onyx's Fredro Starr called him "a master of the flow". Bishop Lamont praised Wallace's ability to capture "all the hemispheres of the music". Wallace often employed single-line rhyme schemes to bring variety and depth to his flow. Big Daddy Kane noted that Wallace did not need an extensive vocabulary to impress; instead, he "just put his words together a slick way, and it worked well for him". Known for composing lyrics in his head rather than writing them down, Wallace occasionally deviated from his usual style. For example, he sang in a slow falsetto on "Playa Hater" and adapted to the rapid-fire rhyme flow of Bone Thugs-n-Harmony on "Notorious Thugs".
Wallace's lyrics explored a range of themes, including mafioso narratives ("Niggas Bleed"), reflections on his drug-dealing past ("Ten Crack Commandments"), materialistic boasting ("Hypnotize"), humor ("Just Playing (Dreams)"), and romantic experiences ("Me & My Bitch"). In 2004, Rolling Stone praised him as "one of the few young male songwriters in any pop style writing credible love songs". In the book How to Rap, rapper Guerilla Black highlighted Wallace's ability to "glorify the upper echelon" while also making listeners "feel his struggle". According to The New York Times journalist Touré, Wallace's lyrics "[mixed] autobiographical details about crime and violence with emotional honesty". Another writer for The New York Times, Michel Marriott, noted in 1997 that his lyrics were not entirely autobiographical, as he had a talent for exaggeration to improve his storytelling and sales appeal. Wallace described his debut album, Ready to Die, as "a big pie, with each slice indicating a different point in [his] life involving bitches and niggaz [...] from the beginning to the end".

Rolling Stone described Ready to Die as a contrast of "bleak" street visions and being "full of high-spirited fun, bringing the pleasure principle back to hip-hop". AllMusic noted "a sense of doom" in some of his songs, while Jon Pareles of The New York Times described a thread of paranoia in others. Wallace himself stated that he felt "broke and depressed" while creating his debut album. The final track on Ready to Die, "Suicidal Thoughts", portrays a character contemplating and ultimately committing suicide. On his follow-up album, Life After Death, Wallace's lyrics delved even "deeper", as observed by Rolling Stone. Krims observed that the record alternates between upbeat, dance-oriented tracks and gritty "reality rap," reflecting a thematic shift toward a more "pimp" persona. XXL Mag noted that Wallace "revamped his image" between the two albums, evolving from a "mid-level hustler" on his debut to a "drug lord" on his sophomore effort. AllMusic credited Wallace's storytelling ability as a key f…

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