Allardyce led Everton away from relegation trouble and to an eighth-place finish during his five-and-a-half-month stay at Goodison Park, but uncertainty over his future grew towards the closing stages of the season.
Fans became increasingly frustrated with the team's style of football, and Allardyce's position was plunged into even greater doubt on Tuesday when the club underwent a major restructuring of the board without informing the 63-year-old.
Allardyce described himself as "shocked, disappointed and disgusted" by the board's behaviour, and suggested that his tenure could be coming to an end during a meeting with club owner Farhad Moshiri this morning.
Everton have now confirmed the news, also announcing that their search for a replacement will begin immediately.
"On behalf of the chairman, board of directors and Mr Moshiri, I'd like to thank Sam for the job he has done at Everton over the last seven months. Sam was brought in at a challenging time last season to provide us with some stability and we are grateful to him for doing that," read a statement from new CEO Denise Barrett-Baxendale.
"However, we have made the decision that, as part of our longer-term plan, we will be appointing a new manager this summer and will be commencing this process immediately. Again, we'd like to place on record our sincere thanks to Sam for his work with us over the last few months and wish him well for the future."