The Spaniard had only been in charge since the summer but has overseen a poor start to the season.
Julen Lopetegui has thanked Real Madrid after he was sacked just two months into the season.
The Spaniard paid the price for the club's shocking start to the season that culminated in a 5-1 defeat by Barcelona.
Real are languishing in ninth in La Liga and have appointed Santiago Solari as caretaker manager.
Lopetegui said: "After the decision adopted by the board of directors of Real Madrid, I want to thank the club for the opportunity it gave me.
"I'd also like to give thanks to the players for their effort and their work, as well as to each and every one of the club's employees, for their good treatment of me during this time.
"And, of course, my gratitude to the fans for their encouragement."Best wishes for the remainder of the season."
The club's board was scathing its assessment of their season so far.
Their statement read: "The Board of Directors of Real Madrid C. F., meeting today October 29, 2018, have agreed to terminate the contract that linked coach Julen Lopetegui with the club.
"This decision, adopted from the highest level of responsibility, aims to change the dynamics of the first team, while all the objectives of this season are still achievable.
"The Board of Directors understands that there is a great disproportion between the quality of the staff of Real Madrid, which has eight players nominated for the next Ballon d'Or, something unprecedented in the history of the club, and the results obtained to date.
"The club thanks Julen Lopetegui and his entire technical team for their effort and work and wishes them the best in their professional career.
"He will be provisionally replaced by Santiago Solari, who will lead the first team starting on Tuesday."
Tottenham boss Mauricio Pochettino is Real's first choice as Lopetegui's replacement with former Chelsea boss Antonio Conte also among the frontrunners.