"There was a Jewish guy, an Israeli guy, who was in the bathroom area," police spokesman Micky Rosenfeld told AFP.
"He for some reason shouted 'Allahu Akbar'," Rosenfeld said. "A security guard drew his weapon and fired several shots at the suspect... He died from his wounds a few moments ago."
The shooting took place a few minutes before 0500 GMT as the plaza in front of the Wall filled with worshippers for morning prayers ahead of the start of the Jewish Sabbath at sundown.
It said that police found nothing suspicious on the man's person.
The Western Wall is venerated by Jews as the last remnant of the wall supporting the Second Temple, which was destroyed by the Romans in 70 AD.
Above it is the compound housing the Dome of the Rock and the Al-Aqsa mosque, the third holiest site in Islam.
Known to Jews as the Temple Mount, the compound is a deeply sensitive location where clashes frequently break out between Palestinian worshippers and Israeli forces.
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