The musician was best known for her genre-defining hits including 9 To 5, I Will Always Love You and Jolene.
In a video shared on Instagram, Parton's nephew said: "My name is Brian Seaver, son of Cassie Parton, and I'm representing the Parton and Owens family today announcing the passing of my aunt, Dolly Rebecca Parton Dean.
"Sister, Sis and Granny to one generation and Gigi to the next."
He added: "This video announcement is something Dolly asked of me years ago, before I fully absorbed it as a future reality. As her head of security for more than two decades, a role my father Larry held before me, I have imagined the heaviness of this moment but haven't truly felt it until now."
Mr Seaver added: "It is an honour, an honour that is mixed with absolute pride and great sadness. But sadness lies with us, not with Dolly.
"Dolly has lived in the light and is in the arms of Jesus, surely met by Carl, her parents and countless others who have watched her and longed to meet her in the heavens."
The irrepressible country music singer, songwriter and actress whose charisma, heartfelt lyrics and business acumen captured the public's imagination for nearly six decades, died on Tuesday aged 80, her family said in a statement.
She won 11 Grammy awards, including a Lifetime Achievement Award and had twenty-five of her songs reach No. 1 on the Billboard Country charts.
With classic songs including Coat of Many Colors, Jolene and I Will Always Love You, she became one of the best-selling female artists of all time, with over 100 million records sold.
Parton's wholesome personality, combined with her towering blond hairdos, flamboyant costumes and giddy delight at holding centre stage, endeared her to Americans of all backgrounds and helped introduce country music to international audiences.
Over the years Parton hosted a TV variety show, starred in movies, and even created a theme park, Dollywood, a popular tourist spot in her home state of Tennessee - all in addition to her lauded work as a songwriter.
But the quality that gave her enduring star power was her ability to connect with people. Coming from a self-described "dirt-poor" family, Parton often stood in as a symbol of the working-class American and regularly threw her name and money behind causes she believed in.
In response to the COVID-19 pandemic, Parton donated $US1 million ($A1.4 million) to vaccine research and she conducted a literacy program for preschool children across the United States, as well as in Canada, the United Kingdom, Australia and Ireland.
It was this ability to stay true to her roots, combined with her drive to work hard and her nonpartisanship, that fueled her appeal among conservatives and liberals in a politically-polarised America.
Parton made her movie debut in 1980's 9 to 5, with the title tune earning Parton an Oscar nomination for songwriting. She got another Oscar songwriting nomination in 2006 for Travelin' Thru, written for the film Transamerica.
Her other movie acting roles included The Best Little Whorehouse in Texas, Steel Magnolias, Rhinestone and Straight Talk.
Despite all her accolades and achievements, Parton found the greatest meaning in her art.
"I feel like I'm closest to God when I write," she wrote in Dolly Parton, Songteller.
"A great line will just come to me, and I'll go, 'Hey, thank You, Lord. I know I didn't think of that.'"
"At the end of the day, I hope that I will be remembered as a good songwriter. The songs are my legacy."
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