Rescue teams were called out to Casterton Fell, near Kirby Lonsdale, following concerns for the man's safety on Saturday afternoon.
Around 40 rescue team members ventured into the Lancaster Hole downstream passage in a bid to rescue the diver after the callout shortly before 5pm.
The man, who has been named by the Lancashire Evening Post as 49-year-old Simon Halliday from near Clitheroe, was discovered 60 metres deep into the underground cave network and immediately brought to the surface, where he was sadly pronounced dead.
A spokesman for the Cave Rescue Organisation (CRO) said: "As well as searching from the point where the cave diver entered Lancaster Hole downstream passage, other entrances and possible exits were also searched by team members and a cave diver, in case the diver had emerged from the system elsewhere.
"The initial search from the access point was led by another member of the Cave Diving Group, who planned to search the first section of the downstream passage.
"Other CDG members were preparing to conduct an extended search if this initial search did not locate the casualty.
"Unfortunately, whilst conducting his underwater search the rescue diver discovered the missing diver, approximately 60 metres into the sump.
"The casualty was immediately brought back to the sump pool chamber and removed from the water, where it was apparent that he was deceased."
The man's body was conveyed to nearby Bull Pot Farm and investigations into the death for the coroner are now being carried out by Cumbria Police.