O'Neil endured a difficult start to the campaign with defeats against the likes of Arsenal, Chelsea, Manchester City and Liverpool - but failed to turn the side's bad form around in recent weeks.
Wolves confirmed on Sunday that they had parted company with the manager and his backroom staff.
"We’re very grateful to Gary for all of his effort, dedication and hard work during his time at the club, and we wish him and his team the best of luck for the future," Chairman Jeff Shi said in a statement.
The dismissal comes after a disappointing 2-1 loss to fellow strugglers Ipswich, the club's fourth consecutive defeat and their ninth in the Premier League this season.
O'Neil had been very outspoken in his post-match interview following the game, placing blame on his players after conceding a late set-piece.
"I would happily take that as my fault, that set-play goal, if people were stood in the right place and people were doing their jobs," he told BBC Sport.
"But for that one they weren't and we get badly punished.
"We will continue to try and push this group to its maximum, get them ready to fight every single time and hopefully we can turn this around."
Wolves are currently 19th in the league and four points from safety.