A C208 autopilot failed to capture the 1;500 FT altitude select. As the aircraft approached 1;000 FT ATC asked the mildly fatigued and distracted pilot about his altitude reorienting him and possibly preventing an accident.

Narrative

I had just completed a long night of cargo flights. It was in the morning on my last leg into my home base. ATC was vectoring me in for a visual approach. They had told me to descend to 1;500 FT. I had 1;500 FT put into the autopilot and it should have leveled off at that altitude. For some reason it did not and I continued down to almost 1;000 FT without noticing. At that point ATC said; 'Say altitude.' I noticed my mistake; started a climb; and responded; 'Correcting to 1;500 FT.' As I was climbing through 1;400 FT on [the] way back to 1;500 FT ATC gave me the altimeter setting and asked what my altitude was. I responded; 'Showing 1;400 FT now.' I had become distracted with something on my phone. In combination with mild fatigue this caused me to descend through my altitude without noticing. I would like to think I would have noticed before I hit the water; but maybe not. If it were not for ATC asking about my altitude this could have been a deadly situation. This was a forceful lesson for me to keep unnecessary distractions in check while flying; especially during the non-cruise phases; and especially when fatigue may be a factor. This also was a good reminder to not become too reliant on the autopilot.