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."
Uruguay have scored just one goal, conceding 11, in their last four matches that included defeats to Brazil, Bolivia and twice to Argentina.
They sit seventh in the single South American qualifying table for the World Cup in Qatar, with only the first four progressing automatically.
Brazil and Argentina have already qualified, while Ecuador need just two wins from their final four matches to join them.
The battle for the final spot sees five teams, including Uruguay, separated by just two points.
Tabarez took charge of a record 221 matches with a single national team, even putting him ahead of former Germany boss Joachim Loew, with 198 games.
He was the longest serving current national team coach until Friday at 15 years and eight months.
Tabarez first took over the Uruguay reins from 1988 to 1990 before he was hired again in 2006.
He also coached Boca Juniors twice and AC Milan between his two stints with the national team.
Standout matches today