Players can die in DDO by having their Hit Points reduced to -10 or lower. This is not to be confused with being incapacitated, which occurs when a player is between 0 and -9 Hit Points, inclusive. When a player dies, their soul stone will appear where they died, and they will become a spirit and may wander around withing a small radius of their soul stone. Spirits that stray too far from their soul stone will be teleported back to it 10 seconds later if they have not already walked closer. Other players may pick up and carry a soul stone in their inventory, allowing the fallen player to follow them around. If a player can bring their spirit to a Resurrection Shrine, they can use it to return to life with a small amount of Hit Points and the same number of Spell Points that they had when they died.

If it is impossible or undesirable to travel to a Resurrection Shrine, a dead player may also release their spirit, which will cause them to be revived with a small number of Hit Points at the last Spirit Binder that they used. For most quests, this will not fail the quest; the player may then run back to the entrance to the dungeon and reenter it at the start. If the dungeon has not yet reset yet, any monsters slain and quest objectives completed will still be dead and checked off, respectively. Some quests have dungeons within dungeons, but in this case, if the inner dungeon has not yet reset, the player can enter it directly from the entrance to the outermost dungeon.

Dying in DDO is not as heavily penalized as in some other MMORPGs. The dying player will suffer a small amount of item damage which cannot cause permanent damage, and the dying player's party will lose a small portion of bonus XP from the death. If a player is forced to release their spirit and reenter the dungeon, the player will also lose a small portion of bonus XP from reentry. Players of 4th level or higher will suffer from resurrection sickness for a short time after death as well.

Player-owned hirelings can also die when reduced to -10 or lower Hit Points. They can be resurrected in the same manner as players, they drop a soulstone, and when they reach a Resurrection Shrine they must be ordered to use it by the player with their contract. Hirelings do not release their spirit unless their master does.

Monsters die when reduced to 0 or lower Hit Points. Unlike players, monsters do not experience an incapacitated state, and thus, cannot stabilize. Slain monsters are added to the bonus XP count for the current quest, or to the Slayer count for the current combat area.

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