Tabarez, 74, enjoys almost legendary status in Uruguay having led the tiny country of 3.4 million people to the World Cup semi-finals in 2010 and then to the Copa America title a year later.
But four straight defeats - three of them by three goals - have left Uruguay in danger of missing out on next year's World Cup, a tournament they won in 1930 and 1950.
"The executive committee of the AUF informs that it has decided to end the contract of Oscar Washington Tabarez and other members of the national team coaching staff," said the Uruguayan Football Association (AUF) in a statement.
The AUF described it as a "difficult decision" that in no way "disavows Tabarez's important contribution to Uruguayan football."