Dolby, 80, had suffered from Alzheimer's disease in recent years and was diagnosed in July with acute leukemia, the company said Thursday.
"Today we lost a friend, mentor and true visionary," Dolby Laboratories President and Chief Executive Kevin Yeaman said in a statement.
Dolby began his career working at Ampex Corp., where he was the chief designer of the first practical videotape recording system, and went on found Dolby Laboratories in 1965 and was eventually granted more than 50 patents, including many for noise-reducing and surround-sound technology.
He also won two Oscars for scientific and technical achievement, several Emmys and a Grammy.
"To be an inventor, you have to be willing to live with a sense of uncertainty, to work in the darkness and grope toward an answer, to put up with the anxiety about whether there is an answer," Dolby once said.
Dolby was remembered fondly Thursday by family, friend and co-workers.
"My father was a thoughtful, patient and loving man, determined to always do the right thing in business, philanthropy, and as a husband and father," David Dolby, his son and a member of Dolby Laboratories' board of directors, said.