The 49-year-old has been in charge of the MLS outfit since December 2014, but was unable to steer his side towards playoff contention during that time.
Houston currently sit at the foot of the Western Conference table following a slow start to the season, taking just 11 points from their opening 12 games of the season.
Coyle has now brought his time in the United States to an end in order to return to Britain where he will reunite with his family.
"I asked [club president] Chris Canetti if I could speak with him and I explained to him the challenge of being away from my family and how we all want the best for Houston Dynamo," he told the club's official website.
"I want to wish all members of the staff, from owner Gabriel Brener to president Chris Canetti to general manager Matt Jordan, everyone has been such a source of support, along with the players and the technical staff.
"I'd like to thank the Dynamo supporters, who have been outstanding. We have a brilliant club, and I have no doubt success is just around the corner."
Coyle penned a three-year deal when joining Houston 17 months ago.