"Chelsea Football Club has parted company this morning with Manager Roberto Di Matteo," a statement said, following Tuesday's 3-0 defeat by Juventus.
Chelsea said the team's "recent performances and results have not been good enough".
"The club faces a difficult task ahead in qualifying for the knockout stages of the UEFA Champions League as well as maintaining a strong challenge for the top of the Premier League while competing in three other cup competitions," they added.
Tuesday's loss in Turin means Chelsea are poised to become the first ever Champions League winners to be knocked out in the group phase the following season.
Even victory at home to Danish side FC Nordsjaelland in their final group match may not be enough to take Chelsea into last 16, as a draw between Juventus and Shakhtar Donetsk in the other Group D game would take both sides through.
Di Matteo was only appointed on a permanent basis in June, having led Chelsea to their first ever Champions League title after replacing his sacked predecessor Andre Villas-Boas in March.
Chelsea beat Bayern Munich on penalties in the Champions League final in May, two weeks after beating Liverpool 2-1 in the FA Cup final.
"The owner and the Board would like to thank Roberto for all he has done for the club since taking over in March," Chelsea added, saying the Italian "will always be welcome at Stamford Bridge".
The statement continued: "The club will be making an announcement shortly regarding a new first team manager.