Jane McGrath, who had battled breast and later bone cancer, had surgery earlier this year and was recovering before complications set in, the statement issued by McGrath's management said.
"With Glenn and their two children by her side, Jane's wonderful life ended peacefully after a sudden decline in her health over the past week," it said.
The 42-year-old, who had two young children with the former paceman, set up the McGrath Foundation with her husband to provide support for women with breast cancer and to raise awareness about the disease.
Cricket Australia chief executive James Sutherland said the sport was saddened to hear of Jane McGrath's death.
"Jane was well-known, loved and admired throughout Australian cricket and was one of the most respected and admired members of the Australian cricket team family group during Glenn McGrath's playing days," he said.
"All of us who met her were charmed by her dignity and good humour as she tackled her battle with her illness for more than 10 years.
"It was typical of her to set aside her own concerns and to offer so much energy and hope to others touched by breast cancer."
Glenn McGrath announced his retirement from Test cricket at the end of 2006 but played in the shorter form of the game until the 2007 Cricket World Cup.