The 51-year-old, who took charge of the club in January 2010, guided the Royals to the Premier League last season as winners of the Championship.
However, with nine matches left to play, the Berkshire-based outfit find themselves in the relegation zone and as a result owner Anton Zingarevich has decided that the time is right for a change of management.
As is so often in these cases, the rumour mill has go into overdrive as to who will fill the void at the Madejski Stadium. Here, Sports Mole brings you five of the early frontrunners.
Paolo Di Canio
He may be a ticking time bomb, but there is no doubting that the fiery Italian would light up the Premier League. Di Canio was present at the Madejski to watch Reading take on Villa on Saturday, which has resulted in speculation that he is line to replace McDermott. However, having only managed Swindon Town, his appointment would be somewhat of a gamble. He was successful at the County Ground though, taking them from League Two up into League One.
Southampton's owners caused uproar earlier this year when they sacked Adkins and replaced him with the largely unknown Mauricio Pochettino. While the Saints were struggling, many believed that Adkins had the capabilities to keep them in the Premier League. The 47-year-old is one of the early favourites to sign on at the Madejski, even though his philosophies and style of play are very similar to McDermott's.
The bookmakers have included Gibbs in the market to take over the managerial duties, although it looks unlikely that he will be given the job. After all, he was the assistant to McDermott and should he be appointed, it is doubtful that there will be many alterations in the way that the teams prepares and plays. It appears that the Reading board want a fresh approach.
Roberto Di Matteo
What a coup it would be if Reading could lure Di Matteo to Berkshire. This time last year he was just about to guide Chelsea to success in both the Champions League and FA Cup. Having been out of work since November last year, reports have suggested that the 42-year-old is now ready to return to work. As well as a stint at Stamford Bridge, the Italian also impressed during spells in charge of Milton Keynes Dons and West Bromwich Albion.
Ole Gunnar Solskjaer
It seems that whenever a job in England's top two leagues becomes available, the former Manchester United striker is linked with it. Having done his apprenticeship with United's reserves, the 40-year-old has gone on to guide Molde to two successive Norwegian League titles. However, with Premier League safety the target for Reading, Solskjaer may not want to take such a risk with his first job in England.