FBI agent Steve Richardson said agents had gone in after negotiations with Jimmy Lee Dykes, 65, deteriorated.
Jimmy Lee Dykes had been keeping Ethan in a storm shelter since last Tuesday after abducting him from a school bus and shooting dead the driver.
The 66-year-old bus driver’s funeral was held on Sunday.
Daryle Hendry, who lives about a quarter of a mile from the bunker, told the Associated Press he heard a boom followed by a gunshot on Monday afternoon.
Steve Richardson said negotiations between officials and Jimmy Lee Dykes had deteriorated over the past 24 hours, and that the abductor had been seen holding a gun.
“We were certainly concerned for the safety of the child,” he said.
Fearing the boy, Ethan, was in imminent danger, officials raided the bunker at 15:12 local time, he said.
A local law enforcement official told Reuters a stun or flash grenade was detonated as part of the operation to free him, but did not release other details.
It was unclear how Jimmy Lee Dykes had died. The child was said to have been unharmed and taken to hospital where he was reunited with his family.
“I have visited with Ethan. He is doing fine: he’s laughing, joking, playing, eating – the things that you would expect a normal 5-to-6-year-old to do,” the FBI agent told reporters.
“Family members say he is doing well, he is unharmed and it’s just a really happy reunion,” said Alabama State Senator Harri Anne Smith.
The incident began in Midland City on Tuesday afternoon when the bus driver refused to hand over the child, whom Jimmy Lee Dykes apparently snatched at random.
According to witnesses, the kidnapper pounced when the school bus stopped to let off two children.
Jimmy Lee Dykes grabbed the door so it could not close and came on board, demanding two boys aged six and eight.
When the bus driver, Charles Albert Poland, blocked the bus aisle with his arm, witnesses said Jimmy Lee Dykes fired four shots, killing him.
During the six-day standoff, officials talked to Jimmy Lee Dykes and delivered medication and toys to the boy through a 4 in (10 cm) ventilation pipe.
Officials did not elaborate on what the navy veteran wanted during negotiations.
“Based on our discussions with Mr. Dykes, he feels like he has a story that’s important to him, although it’s very complex,” Dale County Sheriff Wally Olson said on Monday.
According to court records, Jimmy Lee Dykes had been due to appear in court last Wednesday, accused of menacing neighbors as they drove past his home some weeks ago.
People who live nearby said he had once beaten a dog to death with a lead pipe, threatened to shoot children for setting foot on his property and patrolled his yard at night with a flashlight and a firearm.
Court records showed Jimmy Lee Dykes was arrested in Florida in 1995 for improper exhibition of a weapon, but the charges were dismissed.
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