Anja Niedringhaus, 48, an internationally acclaimed German photographer, was killed instantly, according to an Associated Press (AP) colleague who witnessed the shooting.
Kathy Gannon, the AP correspondent who for many years was the news organisation's Afghanistan bureau chief and more recently was a senior writer for the region, was shot twice and is receiving medical attention. She was described as being in stable condition and talking to medical personnel.
AP executive editor Kathleen Carroll, speaking in New York, said: "Anja and Kathy together have spent years in Afghanistan covering the conflict and the people there. Anja was a vibrant, dynamic journalist well-loved for her insightful photographs, her warm heart and joy for life. We are heartbroken at her loss."
The two were travelling in a convoy of election workers delivering ballots from the centre of Khost city to the outskirts, in Tani district. The convoy was protected by the Afghan National Army and Afghan police. They were in their own car with a freelancer and a driver.
According to the eyewitness, they had arrived in the heavily guarded district compound shortly before the incident.
As they were sitting in the car waiting for the convoy to move, a unit commander named Naqibullah walked up to the car, yelled "Allahu Akbar" ("God is great")and opened fire on them in the back seat with his AK47. He then surrendered to the other police and was arrested.
Medical officials in Khost confirmed Ms Niedringhaus died.
AP president Gary Pruitt remembered Ms Niedringhaus as "spirited, intrepid and fearless, with a raucous laugh that we will always remember".
He added: "Anja is the 32nd AP staffer to give their life in pursuit of the news since AP was founded in 1846. This is a profession of the brave and the passionate, those committed to the mission of bringing to the world information that is fair, accurate and important. Anja Niedringhaus met that definition in every way."
Ms Niedringhaus covered conflict zones including Kuwait, Iraq, Libya, Gaza and the West Bank during a 20-year stretch, beginning with the Balkans in the 1990s. She had travelled to Afghanistan numerous times since the 2001 US-led invasion. Ms Niedringhaus, who also covers sports events around the globe, has received numerous awards for her works.
She was part of an AP team that won the 2005 Pulitzer Prize in breaking news photography for coverage of the war in Iraq and was awarded the Courage in Journalism Award from the International Women's Media Foundation.
She joined the AP in 2002 and had since been based in Geneva, Switzerland.
From 2006 to 2007, she was awarded a Nieman Fellowship in journalism at Harvard University.
Ms Niedringhaus started her career as a freelance photographer for a local newspaper in her hometown in Hoexter, Germany, at the age of 16.
Ms Gannon, 60, is a Canadian journalist based in Islamabad for AP and the author of a book on Afghanistan.