In 1933, after returning from a trip to Spain and Afghanistan, Iqbal began suffering from a mysterious throat illness. He spent his final years working to establish the Idara Dar-ul-Islam, an institution where studies in classical Islam and contemporary social science would be subsidised, and advocating the demand for an independent Muslim state. Iqbal ceased practising law in 1934 and he was granted pension by the Nawab of Bhopal.

After suffering for months from his illness, He breathed his last in the early hours of April 21, 1938, in the arms of his old and devoted servant, leaving behind a host of mourners all over the Islamic world. There was a faint smile playing on his lips, which irresistibly reminded one of the last criterions, which he laid down for a truthful Muslim.. His tomb is located in the space between the entrance of the Badshahi Mosque and the Lahore Fort, and official guards are maintained there by the Government of Pakistan.

Iqbal is commemorated widely in Pakistan, where he is regarded as the ideological founder of the state. His Tarana-e-Hind is a song that is widely used in India as a patriotic song speaking of communal harmony. His birthday is annually commemorated in Pakistan as Iqbal Day, a national holiday. Iqbal is the namesake of many public institutions, including the Allama Iqbal Medical College, Allama Iqbal Open University and the Allama Iqbal International Airport in Lahore. Government and public organizations have sponsored the establishment of colleges and schools dedicated to Iqbal, and have established the Iqbal Academy to research, teach and preserve the works, literature and philosophy of Iqbal. His son Javid Iqbal has served as a justice on the Supreme Court of Pakistan.