Ampon Tangnoppakul, 62, was convicted by the Bangkok criminal court in November of sending text messages deemed insulting to the royal family to the private secretary of then-prime minister Abhisit Vejjajiva in May 2010.
The European Union said at the time it was "deeply concerned" by the 20-year sentence handed down to Ampon, who was considered a "prisoner of conscience" by Amnesty International.
"His wife called me this morning and told me that he has passed away in prison," Ampon's lawyer Anon Numpa told AFP, adding that his client had been hoping for a royal pardon.
The cause of death was still being investigated, according to a doctor at the Corrections Department hospital where Ampon's body was taken from the Bangkok Remand Prison.
"His medical record showed that he used to have mouth cancer and currently his stomach was swollen which is under investigation," he said. "A witness said last night he was fine but this morning he wasn't moving and was already dead."
Ampon, who became known in Thailand as "Uncle SMS", pleaded not guilty during his trial, saying he did not send the messages.
His case was one in a series under the kingdom's strict lese majeste legislation, which critics say is used to stifle free speech.
"He had come to represent the enormous degree of injustice that is this lese majeste law and yet he wanted nothing more than to be a grandfather and to enjoy his old age," Amnesty researcher Benjamin Zawacki told AFP.
The royal family is a very sensitive subject in the politically turbulent kingdom. King Bhumibol Adulyadej, 84, has reigned for 66 years but has been in hospital since September 2009.
Observers say prosecutions under lese majeste legislation surged following a 2006 coup by royalist generals that left the kingdom deeply polarised.
The country has seen a string of rival street protests in Bangkok in recent years and a violent military crackdown in 2010.
Ampon's conviction triggered rare public protests against the lese majeste laws in the capital Bangkok in December.
Under the Thai law, anyone convicted of insulting the king, queen, heir or regent faces up to 15 years in prison on each count. Police are duty-bound to investigate complaints, which anyone in the country can lodge.
In another high profile case, a Thai-born US citizen was jailed in Thailand in December for two-and-a-half years for insulting the king, by publishing online a banned biography that he translated into Thai.
Joe Wichai Commart Gordon was arrested in May 2011 on a visit to the kingdom. A senior US official described his sentence as "severe".
Another figurehead of the Thai free speech movement, website editor Chiranuch Premchaiporn, faces up to 20 years in prison for not removing reader remarks about the monarchy quickly enough.
Chiranuch told AFP she was shocked to hear of Ampon's death.
"He repeatedly asked for bail but the court rejected it on the grounds that he was convicted of a serious crime and could skip bail," she said. "If he had been freed he could have visited doctors in time and might not have died."