The 61-year old coach has parted company with the English Premier League strugglers after a 1-0 home defeat by Manchester United left them just one point above the relegation zone.
Martin O'Neill pays price for Sunderland relegation fears
The 61-year-old's departure was confirmed after last night's home defeat, which left the club sitting just a point clear of the English Premier League relegation zone with seven games left to play.
A club statement said: "Sunderland AFC has announced that it has parted company with manager Martin O'Neill this evening.
"The club would like to place on record its thanks to Martin and wishes him well for the future.
"An announcement will be made in the coming days regarding a successor."
A run of eight league games which has yielded only three points ultimately cost O'Neill his job, after a little more than 15 months at the helm.
Sunderland's last victory came at Wigan on January 19, and with trips to Chelsea and rivals Newcastle United to come ahead of bogey team Everton's visit to the Stadium of Light on April 20, things could get worse before they get better.
O'Neill was seemingly not expecting the development as he conducted his post-match press conference.
He said: "I am as buoyant now as - I was nearly going to say as I have always been.
"What is it - the half-full or the half-empty glass? I'm even going to the three-quarters full. There's a real determination in the dressing room. The players are obviously disappointed, but they can take a lot from the second half.
"Yes, there is a determination about the players in there that we can do it."
O'Neill, of course, was the man whose appointment Sunderland fans had craved for years, and his arrival at the Stadium of Light in December 2011 was greeted with delight.
The Northern Irishman had never made any secret of his boyhood affection for the club and the chance to manage them fulfilled a long-held dream.
His start was just what owner and chairman Ellis Short was looking for as a run of seven victories in his first 10 league games eased the club out of relegation trouble and sent spirits soaring.
The side ran out of steam towards the end of the season, but with their top-flight status secured and the promise of a summer rebuilding programme, attention turned to the new campaign with genuine optimism.
That only increased when Short provided O'Neill with a total of £22 million (Dh122.9m) with which to buy Scotland international striker Steven Fletcher and England winger Adam Johnson, and the American put his hand in his pocket once again in January to add Danny Graham and Alfred N'Diaye to the squad.
However, only Fletcher, who was this week ruled out for the remainder of the season with ankle ligament damage, has hit the ground running with his 11 goals a major contribution to the 31 points they have claimed to date.
Johnson in particular has failed to recreate the form he showed in his early days at Middlesbrough and then in spells after his move to Manchester City, while Graham is yet to find the back of the net in seven appearances.
Short had been unhappy with results for several weeks, but writing in his programme notes today, he called for a united front.
He said: "Of course, there is nobody that is happy with our current position and the way our season is going. The reality is that we have a fight on our hands with eight games remaining.
"We know that we are capable of playing better than we have been doing and we know that we need to begin doing so now.
"I can assure you that every person at the club is doing everything they can to ensure that the season ends on a positive note and when the season is over, we can take stock of what happened.
"Right now, however, there is only one thing that every one of us should be focused on, and that is doing our part whatever that is in helping this team to get the points we need.
"I'm very aware that our supporters, who have backed us week in, week out in such huge numbers, aren't happy and fully understand why.
"But right now, it is important for us all to be on the same side and get behind the team. Not being together will not help us to get results, so let's stand shoulder to shoulder and give the team our full support."
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