The unnamed 43-year-old, who was with her husband at the time, was hiking in the scenic Levada do Norte trail.
She was pronounced dead at the scene, local media reported, at around 11.30am Saturday.
Video from the scene shows emergency crews recovering the woman’s body from the trail, which is next to sheer drop of several hundred feet.
The levadas make up a network of irrigation channels unique to the Portuguese island, providing water to remote areas.
Walking paths follow more than 1,350 miles of mini-canals. Some are narrow, with crumbling ledges.
Local media reported the woman was on her third visit to the island.
She is believed to have lived in Austria with her husband, Madeira Island News reported.
Commenting on footage of the rescue effort posted on the RTP Madeira television channel's Facebook page, a local man, Eduardo Faria wrote: “I’ve done that route but it’s very dangerous!
“You don’t have protections. The Regional Government should put balconies at least in areas with chasms, throughout this journey, urgently.”
Another man said the dangerous paths were an embarrassment to the island. “This is a disgrace," he commented. "Every year tourists die.”