Johnson was seized last weekend by Saudi dissidents who promised to kill him by Friday if the kingdom did not release its al-Qaida prisoners.
Reports from the satellite channel al-Arabiya said an al-Qaida affiliated web site showed photos of Johnson beheaded. The web site said the Saudi government failed to release the prisoners as per the captors' demands.
The web site also showed pictures of what appeared to be Johnson's severed head.
Three pictures shown
There were three pictures of what appeared to be Johnson's severed head - one showed the bloodied head propped up on the back of a body in an orange jumpsuit with a knife leaning on the face.
A second picture showed a hand lifting up the head and a third image showed the body and the severed head from a different angle.
Johnson had worked in Saudi
Arabia for over a decade
"As we promised the mujahidin, we have beheaded the American hostage Paul Marshall after the deadline that the mujahidin gave to the tyrannical Saudi government passed," a statement signed by the Organisation of al-Qaida in the Arabian Peninsula said on al-Islah web site.
Johnson, 49, was an employee of defence contractor Lockheed Martin, which manufactures US helicopter gunships.
The statement said al-Qaida had killed him because of "what Muslims have suffered from American Apache aircraft and their rockets".
"This act is to heal the hearts of believers in Palestine, Afghanistan, Iraq and the Arabian Peninsula.
"This is so that he can taste what Muslims have suffered from Apache planes and their rockets. The slain American parasite was working on their maintenance and developing their
systems in Saudi Arabia," the statement said.
"We, by the will of God, will continue to fight the enemies of God...This act is revenge against them and will be a lesson so that they can be sure of the fate of those who come to our
"This is so that he can taste what Muslims have suffered from Apache planes and their rockets"
Organisation of al-Qaida in the Arab Peninsula,
The statement warned other Americans would meet a similar fate if they went to Saudi Arabia.
Johnson was the latest westerner to be seized during an ongoing series of attacks in Saudi Arabia.
Two were shot dead last week.
'Door to door searches'
A senior Saudi official in Washington said a team of about 20 FBI agents specialising in hostage rescue and negotiations had worked alongside the Saudis to try to secure Johnson's
The official said that for the past two days, more than 15,000 Saudi officers and security forces had been combing Riyadh for Johnson, going door-to-door in some neighbourhoods
considered hotbeds for al-Qaida members and sympathisers.
As a defence engineer Johnson
was an obvious target for al-Qaida
Earlier, prominent Saudi cleric Shaikh Salah bin Abd Allah al-Humaid, in a sermon at Friday prayers in Makka's Grand Mosque, denounced Johnson's capture and potential killing as grave sins under Islam, the most senior Saudi cleric to do so.
Three days after his capture, Johnson appeared on a video on the internet in which his captors identified themselves as an al-Qaida group.
They threatened to kill him on Friday unless the Saudi government released all its al-Qaida prisoners and all Westerners agreed to leave the Arabian peninsula.
"The US government continues to receive credible information indicating that extremists are planning further attacks against US and Western interests," the warning said.
"Credible information indicates that terrorists continue to target residential compounds in Saudi Arabia, particularly in the Riyadh area, but also compounds throughout the country.
"Recent incidents indicate that American citizens residing in private residences are also being specifically targeted," it added.