The Scottish singer, who competed in the 2006 series of the ITV1 competition, was diagnosed with bladder cancer in 2010.
A previous update had said that the mother-of-one was making "remarkable progress" after undergoing "extensive treatment".
Her management confirmed: "It is with deep sadness we announce that Kerry passed away at home, earlier today following a battle with cancer. At this time, our thoughts and prayers are with her family and friends. Further details will be released in due course."
Speaking about her cancer battle last year, McGregor told The Sun: "It was small cell cancer, one of the fastest-spreading. I wasn't surprised. The fight is long, but I want to live. I've got so much more to give."
McGregor, who used a wheelchair and crutches after being left paralysed as a result of an accident when she was 13, was mentored by Sharon Osbourne during the her time on The X Factor.
She said that Osbourne, who also fought the disease, had "been great to [her] previously, and even more so now".
Commenting via her Twitter page this evening, Osbourne wrote: "So sad about Kerry McGregor's passing. Much love and respect to her and her family."
Show boss and former judge Simon Cowell also paid tribute, writing: "I just heard the sad news about Kerry McGregor. I really admired Kerry and my thoughts now go out to all of her family & friends."
She was almost chosen to represent the UK in Eurovision 1997, with her song placing second to Katrina and the Waves in The Great British Song Contest.
Outside of singing, McGregor also appeared in BBC's Grange Hill and Channel 4's The Book Group, as well as a number of theatre and radio productions.
Watch Kerry perform 'You Are The Sunshine Of My Life' on The X Factor below: