According to witnesses, unknown assailants opened fire on Elci and 40 other activists as they were giving a press statement near a mosque in Diyarbakir's Sur district.
The police immediately returned fire, they said.
Tahir Elci, head of the bar in Diyarbakir who had been detained in October for alleged "terrorist propaganda", died of gunshot wounds to the head, hospital sources told AFP.
Three policemen and an unknown number of journalists were wounded in the clashes, the witnesses said.
A hunt for the attackers was underway.
Turkey's southeast has been hit by the worst violence in years after a two-year old ceasefire between the Turkish government and the PKK militants collapsed in July.
Elci was released pending his trial over an interview in which he said the outlawed Kurdistan Workers' Party (PKK), which has killed dozens of Turkish soldiers since the resumption of hostilities, was not a terrorist organization.
He had risked up to seven years in prison.