Ghazala Javed, 24, was shot six times by gunmen as she left a beauty salon, although police do not believe the Taliban was responsible for her murder and said her ex-husband was a suspect in the case.
Her father, who was with her, was also killed, police said.
“Two men on a motorbike sprayed bullets and fled leaving them in a pool of blood,” senior police officer Dilawar Bangash told AFP.
She was shot six times and her father once in the head, Bangash said.
“We have registered a case and launched an investigation. The murder seems to be result of some internal dispute,” he added.
Police official Imtiaz Khan said the ex-husband was suspected of involvement in the murders.
The singer had fled to Peshawar in 2009 to escape the then Taliban-dominated northwestern district of Swat as the army launched a sweeping offensive.
From 2007 to 2009, Taliban fighters controlled by radical cleric Maulana Fazlullah effectively seized control of the district, terrorising people with murders, beheadings, attacks on girls’ schools and music shops.
Singers and dancers were singled out in particular until the army reasserted control in July 2009, winning praise from the United States for eliminating an Islamist threat 100 kilometres (60 miles) from the capital Islamabad.
Javed sung in her native Pashto language and released more than two dozen albums that were popular among Pashto speakers in the northwest.
She married businessman Jahangir Khan in 2010, but demanded a divorce after finding out he had another wife and because he tried to ban her from singing, the family said.
It is rare for women in the deeply conservative northwest to solicit a divorce and under Islamic law men can have up to four wives at once.