The decision comes just hours before the Toffees take on Peterborough in the FA Cup third round on Thursday night.
Everton confirmed through a statement that former defender Leighton Baines will take charge of this evening's tie at Goodison Park alongside Seamus Coleman.
Ian Woan, Steve Stone, Mark Howard and Billy Mercer – members of Dyche's coaching staff – have also left the club.
Everton also added: "The process to appoint a new manager is underway and an update will be provided in due course."
'Noise has grown'
Asked earlier this week if the club were considering his position, Dyche's answer suggested he knew the sack could be looming.
"To be clear, it should be," the former Burnley boss said.
"At the end of the day, if you're a business of this size, succession planning should surely be part of their diligence. I've got no problem with that at all.
"I think the noise has grown very powerful here. It does. But we've had it before.
"The players haven't lacked effort but it's obviously affecting them because you can see it in their performances."
Dyche joined Everton in January 2023 but nearly two years later has been removed from his position with the club failing to progress under the Englishman.
The remit when arriving at the club was to stay in the Premier League, which was achieved with a final-day victory over Bournemouth in the 2022/23 campaign.
Mourinho or Moyes?
Former Manchester United and Chelsea boss Jose Mourinho, currently in charge of Turkish club Fenerbahce, has recently been linked with Everton.
Mourinho has experience of working with the Friedkin Group at Roma, although the Italian club sacked him just under a year ago.
David Moyes, who managed Everton between 2002 and 2013, ex-England coach Gareth Southgate, Brentford boss Thomas Frank and Bournemouth manager Andoni Iraola are also among the reported contenders to succeed Dyche.
Toffee turmoil
Everton faced financial issues the following season and were handed a 10-point deduction (later reduced to six) for failing to comply with Profit and Sustainability Rules (PSR), although still managed a 15th-placed finish.
Dyche's side regressed this term, though, with just 17 points from their 19 matches seeing them fall to 16th in the league.
Everton's last outing in the division saw them fall to a limp 1-0 defeat at Bournemouth, prompting new owners The Friedkin Group to act.
It was the eighth occasion in the last 10 matches where they failed to score.
Dyche is now the sixth manager to lose his job this season after Julen Lopetegui, who was dismissed by West Ham on Wednesday.