A semiconductor device has a first semiconductor die with a shielding layer formed over its back surface. The first semiconductor die is mounted to a carrier. A first insulating layer is formed over the shielding layer. A second semiconductor die is mounted over the first semiconductor die separated by the shielding layer and first insulating layer. A second insulating layer is deposited over the first and second semiconductor die. A first interconnect structure is formed over the second semiconductor die and second insulating layer. A second interconnect structure is formed over the first semiconductor die and second insulating layer. The shielding layer is electrically connected to a low-impedance ground point through a bond wire, RDL, or TSV. The second semiconductor die may also have a shielding layer formed on its back surface. The semiconductor die are bonded through the metal-to-metal shielding layers.