Nazario Moreno, known as El Mas Loco - The Craziest One - was the founder of the La Familia cartel and regarded as the spiritual leader of its offshoot, the brutal Knights Templar.
His death was first announced after a 2010 shootout, but no body was found and he was reportedly seen alive since.
Police said he was finally tracked down and shot dead in Michoacan state.
"From a fingerprint analysis we have confirmed 100% that this was Nazario Moreno Gonzalez," said Tomas Zeron, the head of investigations at the federal prosecutor's office.
Government security spokesman Alejandro Rubido said security officials had been tracking Moreno for some time.
"Anonymous tips indicated that Nazario Moreno was not only living, but continued operating at the head of a criminal group conducting extortion, kidnapping and other crimes," he said at a news briefing in Mexico City.
"This person was known as dangerous," he said, with police believing he had committed multiple murders since his reported death.
Police used fingerprints to confirm the identity of the dead body
Mr Rubido said Moreno was stopped by police on Sunday morning in the village of Tumbiscatio in Michoacan state.
"When he was asked to turn himself in, he opened fire and was killed," he said.
Moreno, 43, was the founder of the La Familia cartel, which dominated the drugs trade in Michoacan but was believed to have been severely weakened by his reported death.
Its breakaway group, the Knights Templar - know for its brutality and its use of religious imagery - subsequently took over many of the cartel's operations and runs much of the methamphetamine production and trafficking in the west of Mexico.
The BBC's Mexico correspondent Will Grant says Moreno's killing is a second major success for the government's campaign against the drugs trade within a month.
In late February, Joaquin Guzman, known as El Chapo or "Shorty" was arrested in Sinaloa state.
His Sinaloa cartel is believed to be one of the biggest criminal organisations in the world, trafficking drugs into more than 50 countries worldwide.
He was one of Mexico's most-wanted men and had been on the run since escaping a high-security prison in a laundry basket in 2001.
Some 60,000 people have died across Mexico since 2006 when the previous government under Felipe Calderon deployed the military against the drugs gangs.