The 52-year-old had been 33 games into his third permanent spell in the dugout at Boundary Park, but with the Latics sitting bottom of the League One standings, the club's hierarchy have decided to make a change.
A statement read: "Oldham Athletic (2004) AFC Limited can confirm that first team manager, John Sheridan, has left the club by mutual consent.
"The board of directors would like to place on record their thanks to John for his contribution to the development of the club, not only during this tenure, but as both a player and manager previously.
"His impact over the past two seasons in particular, when he has saved the club from near certain relegation on both occasions, will mean he is always guaranteed a warm welcome here by both the club and fans alike.
"This season, however, has not seen the progression we hoped with what was felt to be the nucleus of a good squad, and results, performances and league position have been hugely disappointing."
Ahead of Saturday's fixture with Rotherham United, there had been signs that Sheridan was beginning to turn around the club's fortunes after four points were registered from away games against Fleetwood Town and Bristol Rovers respectively.
However, a 2-1 setback against leaders Shrewsbury Town was followed by a 5-1 defeat at the New York Stadium, a result which has led to a change being made in the dugout.