Lindsay Sandiford, 56, originally from Redcar on Teesside, was arrested at Bali's airport last May after 10.6lb (4.8kg) of cocaine worth £1.6 million was found in the lining of her suitcase.
She claimed she was forced into taking the drugs into the country by gangsters who were threatening to hurt one of her children.
The death sentence prompted gasps of surprise in Denpasar District Court.
Sandiford, whose lawyers are expected to appeal the sentence, wept in court and covered her face as she was taken back to prison.
Prosecutors had recommended a 15-year jail term, but the judges said there were no mitigating circumstances and "no reason to lighten her sentence".
They said Sandiford had damaged the image of Bali as a tourism destination and weakened the government's anti-drugs programme.
Sandiford previously said she became involved because "the lives of my children were in danger".
Three other Britons were arrested at the same time as Sandiford in a sting operation. Julian Ponder and Rachel Dougall were accused of being involved in the same smuggling operation. Paul Beales was also detained.
At the time of her arrest, Dougall insisted she was the victim of a fit-up and Ponder claimed he was trapped.
A verdict is expected in the trial of Ponder, who is accused of receiving the drugs in Bali, tomorrow.
Five foreigners have been executed in Indonesia since 1998, all for drug crimes, although there have been no executions in the country since 2008, according to Australia's Lowy Institute for International Policy.
Foreign Office Minister Hugo Swire told the Commons: "We strongly object to the death penalty and continue to provide consular assistance to Lindsay and her family during this difficult time."
Mr Swire said repeated representations had been made to the Indonesian authorities and Foreign Secretary William Hague had raised the case with his counterpart in the country.