The 51-year-old, who was appointed Royals boss in 2009, was given the chop due to a dismal campaign, which has placed the club second from bottom in the Premier League table.
"The players are on the floor," Dolan said in a press conference. "Normally when a manager goes, by the nature of the job, some players may not be disappointed. In this situation, every player is disappointed. But that tells you everything about Reading Football Club."
Former Swindon Town boss Paolo Di Canio has been heavily linked with the vacancy.