The 52-year-old Portuguese had been in his second spell at the club, taking charge in June 2013.
Chelsea finished eight points clear last season and won the League Cup, but have lost nine of their 16 league games so far and are 16th in the table, one point above the relegation places.
Mourinho's final match was Monday's 2-1 defeat at leaders Leicester City.
Pep Guardiola, Guus Hiddink, Brendan Rodgers and Juande Ramos have all been touted as possible successors.
He leaves with Chelsea just a point off the relegation zone and 20 points behind Leicester.
Champions League qualification via one of the top four spots in the Premier League looks highly unlikely.
However, the Blues are through to the last 16 of European football's biggest club competition, where they will face French champions Paris St-Germain in February and March.
Mourinho only signed a new four-year contract on 7 August and is Chelsea's most successful manager.
He won three Premier League titles, two of those in his first spell between 2004 and 2007.
The Portuguese has also won the FA Cup, in 2007, and the League Cup three times - in 2005, 2007 and 2015.
Troubles on and off the pitch
It has not only gone wrong in the Premier League for Mourinho, he has also had his issues off the pitch.
A 2-2 draw with Swansea on 8 August was overshadowed by a fallout with his medical team, in particular club doctor Eva Carneiro.
Carneiro had her role downgraded after Mourinho said his medical staff were "naive" for running onto the pitch to treat attacking midfielder Eden Hazard.
She eventually left on 22 September and is now taking legal action against Mourinho and the Blues.
Mourinho also received a suspended stadium ban and £50,000 fine for claiming referees were "afraid" to award his team penalties in a 3-1 home loss to Southampton in October.
He subsequently had to serve a one-match stadium ban and pay a £40,000 fine for his behaviour during a 2-1 defeat by West Ham, when he spoke to referee Jon Moss at half-time.
What now for Mourinho?
It is unlikely he will be out of management for long, given his record of success at Chelsea and other top European clubs.
He guided Porto and Inter Milan to Champions League glory in 2004 and 2010 respectively, then led Real Madrid to the Spanish La Liga title in 2012.
At 52, he is still some way from retirement age, but he has expressed a wish to coach the English and Portuguese national sides at some stage in his career.
In fact, he claimed he turned down the chance to become England boss when Steve McClaren was sacked in 2007.
Mourinho has a proven track record of bringing success over the short-term but doubts will remain over his ability to build a dynasty.
Will that make his candidature less appealing to the kind of club he is used to managing, such as German giants Bayern Munich, rising French stars Paris St-Germain or Premier League duo Manchester United or Manchester City?
What now for Chelsea?
The Blues may be struggling at the wrong end of the Premier League table, but they are still in the Champions League and both domestic cups, while achieving European qualification is not impossible.
The key for any new manager is improving the morale of a talented squad that has underachieved this season.
Players such as Hazard, Diego Costa, Willian, and Oscar were key to Chelsea winning the league title but performances have fallen well below the heights they reached last year.
After the 2-1 defeat by Leicester Mourinho said he felt his "work was betrayed" by his players, and midfielder Cesc Fabregas has said it is time for everyone to step up.
"If you are a big player and paid like a big player, you must play like a big player and behave like a big player," said the Spain international.
Analysis
BBC Sport's Editor Dan Roan:
"Jose Mourinho had a meeting with the club at around 14:30 GMT when he was told the end had come. He has been let go in his second stint and won't be paid the £40m compensation speculated. My understanding is that he has been paid until the end of this season, what was left of the £12m.
"While he has undeniably enjoyed so much success around Europe, he has failed to manage to secure a lasting legacy and enjoy success over a prolonged period of time.
"Chelsea faced a huge decision and Roman Abramovich had to make it. Reports of Juande Ramos have been a surprise and former manager Guus Hiddink has been linked too. There hasn't been an obvious choice."
Article by BBC Sports
