The Knicks, who were the toast of the NBA last month when unheralded bench player Jeremy Lin inspired a magnificent run, have lost eight of their last 10 games.
"After speaking with Mike this morning, we mutually agreed that it would be best for the organization if he did not continue in his role as coach of the Knicks," team owner Jim Dolan said.
The announcement came less than 48 hours after the Knicks lost their sixth consecutive game and fell into a tie with the Milwaukee Bucks for the eighth and final playoff spot in the Eastern Conference with an 18-24 record.
Assistant coach Mike Woodson will serve as interim coach starting with Wednesday's home game against the Portland Trail Blazers at Madison Square Garden.
"Expectations are high. We knew that coming into this season. I'm going to hold these guys accountable for that," said Woodson, a former head coach with the Atlanta Hawks. "There will be things changed as we move along."
D'Antoni, the former Phoenix Suns coach who was named Coach of the Year for the 2004-05 NBA season, was hired by the Knicks in May 2008. He compiled a 121-167 record during his tenure, which included a first-round playoff loss last year.
Knicks General Manager Glen Grunwald said D'Antoni, who did not attend Wednesday's news conference, poked his head into his office at the team's practice facility to talk out his decision.
"I was surprised this morning when we came to this decision," said Grunwald. "It's been a rough go for Mike.
"Now we have to move forward. We have 24 games left and we have to attack that on a game by game basis and do everything we can to get this team back to the playoffs."
After a poor start to the current NBA campaign, the Knicks revived their playoff aspirations when D'Antoni inserted Lin at point guard, sparking a seven-game win streak to reach 15-15.
The surge came without All-Star Carmelo Anthony, who was out with injury, and Amar'e Stoudemire, who was absent due to a death in his family.
The free-flowing attack that marked the winning streak was never the same since the return of Stoudemire and Anthony, who prefers handling the ball to create his scoring opportunities.
Since Anthony's return, and with defenses focusing on stopping Lin's drives to the hoop, the Knicks have gone 2-8.
"It was a selfless move," Grunwald said about D'Antoni's decision. "He felt that he had done all he could and he didn't see another way that he could positively affect the team so we that could move forward."
D'Antoni, who compiled a 253-136 record in five seasons with the Suns and two-time league Most Valuable player Steve Nash, was brought into a difficult situation in New York.
The Knicks were shedding bad contracts to create salary room in time for 2010's illustrious free agent class that included LeBron James, coveted by New York.
After failing to lure James to New York, the Knicks signed free agent Stoudemire, who had played for D'Antoni in Phoenix.
The Knicks then pulled off a blockbuster deal at last year's trade deadline to bring in Anthony from the Denver Nuggets, and they advanced to the playoffs with a 42-40 record before being swept in the first round by the Boston Celtics.
D'Antoni, believed to have opposed trading for Anthony, tried to install a motion offense under the direction of Lin, the NBA's first Asian-American player whose dazzling play sparked a craze dubbed "Linsanity."
But that system did not seem to gel with the talents of Anthony, whose 21.3 scoring average this season is more than three points below his career average.