British Transport Police said officers were called by paramedics to Marston Road level crossing near Lidlington, Bedfordshire, at 10:00 GMT.
The car had been hit by the Bedford to Bletchley London Midland Service. Eleven passengers and two members of staff were on board but no-one was injured.
Disruption on the line was expected until 15:00 GMT, Network Rail said.
Police said the death of the man, who was believed to be middle-aged, was not being treated as suspicious "at present".
"However officers continue to examine exactly how the car came to be on the tracks," a spokesman said.
Live: Follow updates on this story as they happen
One of the passengers on board the train, Kieran Sargent, said he "heard this sound that wasn't right".
"I was standing up next to the train driver," he said. "All of a sudden there was an almighty bang. The driver tried to brake but there was nothing she could do".
He said he saw the car and it was "absolutely obliterated".
"There was nothing left," he added.
Mr Sargent said the other passengers and the driver were all "shocked" by the incident.
"I've been shaking since I got off."
Bedfordshire Police advised drivers to avoid the area, while London Midland said taxis and minibuses replaced cancelled services between Bedford and Bletchley.
BBC Three Counties Radio reporter Usman Azad said the driver of the Bedford to Bletchley London Midland train looked "visibly distraught".
The crossing features what Network Rail described as a "half barrier", where only part of the road is blocked off.
A nearby resident, who did not wish to be named, said "people try to dodge the barriers".
"People always try to jump it because they can't wait for the train to come through," he said.
The crossing is used by about 36 trains and 1,200 vehicles each day. Trains can pass through at up to 60mph (96kmph).

8 September 2016 Last updated at 15:33 BST
The fruit is still attached to the plant and is not yet ripe enough to eat.
Austin Grant from Sheffield had been dubious about the suitability of South Yorkshire's climate, but has finally seen some results.
"I was literally jumping for joy," the 62-year-old grandfather said.

Subhan Shafiq stepped down as Milton Keynes mayor after describing the man as being of "good current character".
This helped the driver, Mr Shafiq's friend, to get a taxi driver's licence.
Milton Keynes Council leader Peter Marland said Mr Shafiq should examine his conscience over whether he could even continue as a councillor.
Mr Marland, Labour leader of the council, said: "He resigned to protect the reputation of the council but I think it is very difficult for him to remain and keep the trust of the public after advocating for someone who has been convicted of rape.
"He must examine his own conscience on this."
Mr Shafiq, a Liberal Democrat, had described his "friend", who had been convicted of four sexual assaults, as being of "good current character".
But earlier this month a member of the public raised concerns about the driver and his licence was revoked.
The council claimed it had "taken rapid steps" to keep passengers safe.
Mr Shafiq said in a previous statement he had resigned as mayor "with deep regret".
The driver had been issued with a licence in September 2011, despite councillors knowing of his four convictions, for which he had served a "substantial" custodial sentence.
He had received a "very strong" character reference from Mr Shafiq, who became mayor in June.
The driver's convictions were discussed again in 2012 and his licence was temporarily suspended, but this ban was later "inexplicably" lifted, the council said.
Seven other drivers who give the council "cause for concern" have been identified as part of a detailed review of licence holders.
A man died when the car he was in was hit by a train at a level crossing.
[NEXT_CONCEPT]
A gardener has said he was "flabbergasted" that his banana plant has finally provided fruit after nine-years.
[NEXT_CONCEPT]
A mayor who resigned after a taxi driver he vouched for was found to have a rape conviction has been urged to leave the council altogether.