The banknotes and coins remain legal tender as other people have mentioned, but they would be replaced (coins within the year, banknotes whenever the next series is released).

When she does die, the Royal Canadian Mint will stop production of coins bearing the Queen, and (eventually) begin production of the new monarch (Charles). Production begins after Charles chooses his regal name, and approves the new design sent by the Mint (approving the portrait of coins for the Commonwealth realms is probably be one of his first official acts). The whole process takes about a week, with production beginning shortly after that (hypothetically this could go on for a while if Charles hates the designs constantly).

The Mint pretty much expects these coins to be in circulation within a year. The QEII coins will still be around, but as older ones get turned into the Mint (the one's banks deem unusable), and the Mint pumps out the new coins, they will eventually become a rarity. Sorta like a Canadian George VI nickels, or to give an American example, a nickel from the 1930s-50s.

Banknotes take longer to phase in as the Mint generally produces a new series of banknotes once every 5-10 years (so they would wait for the next series before making any changes). Once the new series is released though, the change would be much more noticeable than it was with coins, with an older bill becoming a rarity as short as 5 years. The efficiency of phasing out the banknotes is mainly because the banks and Mint work together to dispose of the older series (for security reasons). Conversely, coins don't get disposed of until they're deemed unusable (from age, wear and tear, people screwing around with it).