Mourinho guided his side to the Premier League title in May but has suffered a freefall this season.
A 2-1 defeat to Leicester on Monday was their ninth of the campaign, leaving them in 16th place.
Mourinho leaves with Chelsea now just a point above the relegation places.
A Chelsea statement read: "Chelsea Football Club and Jose Mourinho have today parted company by mutual consent.
"All at Chelsea thank Jose for his immense contribution since he returned as manager in the summer of 2013.
ON HIS WAY: Mourinho hides his face
"His three league titles, FA Cup, Community Shield and three League Cup wins over two spells make him the most successful manager in our 110-year history.
"But both Jose and the board agreed results have not been good enough this season and believe it is in the best interests of both parties to go our separate ways.
"The club wishes to make clear Jose leaves us on good terms and will always remain a much-loved, respected and significant figure at Chelsea.
"His legacy at Stamford Bridge and in England has long been guaranteed and he will always be warmly welcomed back to Stamford Bridge.
"The club’s focus is now on ensuring our talented squad reaches its potential.
"There will be no further comment until a new appointment is made."
Guus Hiddink is set to fill in as interim-boss until the end of the season and is expected to beappointed before the weekend.
It will be the second time the Dutchman has been caretaker boss at Stamford Bridge having held the role after Luiz Felipe Scolari was sacked in 2009.
Hiddink combined the role with his job as Russia manager and led the club to an FA Cup triumph.
Starsport understand a deal for Pep Guardiola to replace Mourinho as permanent boss in the summer is also "90 per cent done".A Starsport source said: "Roman Abramovich is a big Guardiola fan.
"The move to bring him in is already 90 per cent done."
The Portuguese was pulled into a meeting room at Chelsea's Cobham training ground shortly after 2pm to thrash out the terms of his departure with chairman Bruce Buck and director Eugene Tenenbaum.
Despite getting the boot he was in no mood to make a hasty exit from the club.
Mourinho remained at the training complex for over two hours after his dismissal as he said his goodbyes to players and staff.
The Special One has been installed as the favourite to now take the Manchester United job.
Even Prime Minister David Cameron has had his say on Mourinho's sacking.
A spokesperson for Cameron insisted that the Conservative leader was saddened to hear of his departure.
They said: "[The] PM is always sad to see anyone lose their job but he would point to the 740k vacancies in UK economy."
Cesc Fabregas was the first Chelsea player to come out on social media with a message for his former boss.
On his Instagram, Fabregas said: "Thank you for all you have done for me. I owe you a lot and we will all miss you. Good luck in the future and I know you will be back soon."
WHERE IT ALL WENT WRONG
August 8: Mourinho criticises Chelsea first-team doctor Carneiro and physiotherapist Jon Fearn for naivety in running on to the field to treat Eden Hazard in the opening-day draw with Swansea. Mourinho is cleared by the Football Association of abusing Carneiro, who then subsequently leaves Chelsea.
August 16: Chelsea lose 3-0 away to Manchester City, with Mourinho substituting captain John Terry at half-time.
August 29: Mourinho's 100th Premier League home match results in only a second loss as his side go down 2-1 to Crystal Palace.
September 12: The Blues lose again as they are beaten 3-1 at Everton, Steven Naismith with a hat-trick.
September 19: Diego Costa is banned retrospectively for a running feud with Arsenal defenders Laurent Koscielny and Gabriel in Chelsea's 2-0 win. Arsene Wenger avoids censure afterwards for calling referee Mike Dean "weak and naive". Mourinho turns his frustrations to Wenger and the FA.
September 29: Chelsea lose 2-1 to Mourinho's old club Porto in the Champions League.
October 3: Following a fourth league defeat, 3-1 to Southampton, Mourinho questions whether he will be sacked and subsequently receives the first vote of confidence in a manager in the 12 years of Roman Abramovich's ownership. He is, though, hit with a £50,000 fine and suspended one-match stadium ban for comments after the loss about referee Robert Madley, which, an independent panel judges, alleged bias.
October 15: The Portuguese maintains his attack on the FA, calls his fine a "disgrace" and says: "I'm happy that I don't have an electronic tag."
October 17: Mourinho rounds on star player Hazard after dropping him to the bench for the 2-0 win over Aston Villa and demands the Belgian improve his defensive work rate.
October 24: Chelsea lose again, 2-1 at West Ham, losing Nemanja Matic to a first-half red card and also having assistant first-team coach Silvino Louro sent to the stands. Mourinho does not emerge on the touchline for the second half, having also been sent off.
October 26: Mourinho charged with misconduct over his behaviour at West Ham.
October 27: Holders Chelsea are knocked out of the Capital One Cup after losing their fourth-round tie to Stoke on penalties.October 31: Chelsea suffer yet another defeat as Liverpool are 3-1 winners at Stamford Bridge. The club's position on his future, publicly at least, is unchanged from the vote of confidence at the start of the month.
November 2: Starsport learn legal papers will be served on Mourinho as part of separate but connected claims against him and against the club by Carneiro.
November 2: Mourinho is given a one-match stadium suspension with immediate effect and fined £40,000 after admitting an FA charge of misconduct over his behaviour at West Ham.
November 6: The FA releases its written reasons for Mourinho's ban, saying he called referee Jon Moss "f****** weak".
November 7: With Mourinho absent from the game due to his ban, Chelsea lose 1-0 at Stoke - the club's seventh league loss of the campaign.
November 23: It is announced that Chelsea made a loss of £23.1million in their Premier League-winning season.
November 29: Costa is dropped to the substitutes' bench for the 0-0 draw at Tottenham and throws his bib in Mourinho's direction when it becomes apparent he would not feature.
December 5: Blues go down 1-0 at home to Eddie Howe's Bournemouth. Substitute Glenn Murray was on the pitch for one minute 39 seconds before netting 82nd-minute winner.
December 14: Chelsea beaten 2-1 at Leicester, putting the Foxes back top of the Premier League and leaving Mourinho's men one point above the relegation zone after 16 matches - Chelsea's worst start to a season since 1978, when they went on to be relegated. Mourinho says after the game that his work was "betrayed" by his players. He admits all top-four hopes are "gone" and says he needs pride from his players.
December 17 - Chelsea announce they have parted company with Mourinho by mutual consent.
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