The Scotsman leaves Tynecastle Stadium with immediate effect after spending less than a year in the role.
Cathro took over at Hearts in December 2016 and went on to oversee just five wins in 22 Scottish Premiership matches as the club finished fifth in the table.
A statement from Hearts director of football Craig Levein read: "The board wishes it to be known that this was a very difficult decision, reluctantly made, as every member of the board recognises that Ian is an extremely talented young coach with a very bright future ahead of him. We thank Ian for all of his efforts and wish him well in the future.
"A further statement will be made tomorrow in relation to management plans for this weekend's Ladbrokes Premiership match against Celtic and longer term."
Cathro has previously worked as assistant coach at Valencia and Newcastle United.