The death happened in Orange Beach, Alabama, according to mayor Tony Kennon, who also told The Associated Press that one person was still missing.
Lumbering in at just 3 mph, the storm made landfall at 4.45am close to Gulf Shores, Alabama.
She cast boats onto land or sank them at the dock, flattened palm trees, peeled away roofs, blew down signs and knocked out power to more than 540,000 homes and businesses.
By the afternoon, authorities in Escambia County, Florida said at least 377 people had been rescued from flooded areas.
Authorities in Pensacola, Florida said 200 National Guard members would arrive on Thursday to help. Curfews were announced in Escambia County and in some coastal Alabama towns.
Sally turned some Pensacola streets into white-capped rivers early on Wednesday.
Sodden debris and flooded cars were left behind as the water receded.
By early afternoon, the hurricane had weakened into a tropical storm. It was downgraded to a depression late Wednesday night with 35 mph sustained winds.
The National Weather Service said the system was still forecast to dump 4 to 8 inches of rain in southeast Alabama and central Georgia by Thursday night.
At least eight waterways in south Alabama and the Florida Panhandle were expected to hit their major flood levels by Thursday.
Some of the crests could break records, submerge bridges and flood some homes, the National Weather Service warned.
Escambia officials urged residents to rely on text messages for contacting family and friends to keep cellphone service open for emergency 911 calls.
Sally was the second hurricane to hit the Gulf Coast in less than three weeks and the latest to blow in during one of the busiest hurricane seasons ever.
At the start of the week, it was one of a record-tying five storms churning simultaneously in the Atlantic basin.
Like the wildfires raging on the West Coast, the onslaught of hurricanes has focused attention on climate change - which is causing slower, rainier, more powerful and more destructive storms.
Sally’s effects were felt all along the northern Gulf Coast, affecting low-lying properties in Mississippi and southeastern Louisiana.
Hurricane Laura pummelled southwestern Louisiana on August 27. Thousands of people were still without power from that storm, and some were still in shelters.
Meanwhile, far out in the Atlantic, Teddy became a hurricane on Wednesday with winds of 100 mph.
Forecasters said it could reach Category 4 strength before closing in on Bermuda, which took a direct hit from Hurricane Paulette only days ago.