Raphael Moussa, 46, was shot in the head standing by his car in the city of Al-Arish in North Sinai province on Thursday.
He had led Mass in a church earlier that day.
Egypt's Interior Ministry has said Raphael Moussa took his car to the area to get it repaired.
The Coptic Church has also confirmed Mr Moussa's death.
The Egyptian branch of Islamic State said on social media that it murdered the priest because they believed he was "combatting Islam".
He is not the first Coptic priest to be murdered in Al-Arish; Mina Aboud was also killed in July 2013.
Mina Aboud's murder happened shortly after former Egyptian President Mohammad Morsi, who represented the Muslim Brotherhood party, was overthrown.
Mr Moussa's death came as Egypt was marking three years since Mr Morsi was ousted.
