The decision comes after the Blues fell to their ninth defeat of the season in the Premier League, losing 2-1 away at Leicester, who rose to the top of the table - 20 points ahead of the London side.
That loss left the Blues 16th in the table, having won only four of their opening 16 fixtures, amassing a measly 15 points along the way.
Following the game, the Portuguese said he felt 'betrayed' by his players and conceded they would will not finish in the top four this season.
"All at Chelsea thank Jose for his immense contribution since he returned as manager in the summer of 2013.
"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."
That loss left the Blues 16th in the table, having won only four of their opening 16 fixtures, amassing a measly 15 points along the way.
Following the game, the Portuguese said he felt 'betrayed' by his players and conceded they would will not finish in the top four this season.
Less than 24 hours before his dismissal, the Portuguese had again asked questions of his players, claiming his squad needed to take a look at their behaviour both on and off the field.
"Some of them need to rethink the way they live Chelsea, the way they live football, they live their job," he told Chelsea TV.
"Chelsea is big, football is more than a job, it's a passion. Every match on the pitch you should live with an unbelievable passion.
"How many millions would love to be football players and they can't be? You shouldn't waste any minutes on the pitch, you should enjoy every minute and you should give absolutely everything.
"Yes, I feel frustrated with some players and I feel that some others give absolutely everything and don't deserve to lose."
Have your say in the comments section below
Mourinho steadied the ship in his first season back in charge at Stamford Bridge in 2013-14, before bossing a title-winning side last term.
It has, however, been a limp defence of their crown, and even a top-four finish seems a long shot at this stage.
The Blues have made it to the last-16 in the Champions League, where they will play Paris Saint-Germain, but it has been the champions' domestic form which has been the undoing of Mourinho.
Former Tottenham Hotspur boss Juande Ramos has reportedly been lined up to replace him, while Guus Hiddink has also been mentioned as an interim option - just days after Mourinho had declared he didn't fear the sack.
