McDermott, who joined the Rhinos in 2010, won four Grand Finals, two Challenge Cups, a League Leaders' Shield and a World Club Challenge in his spell as the Super League's longest-serving manager.
However, the eight-time Super League winners sit eighth in the table following a 46-8 defeat to Wigan Warriors last Friday, a club-record seventh straight loss.
"Obviously it is not a decision I agree with," McDermott told BBC Sport. "I am extremely disappointed this has happened. I wish everyone at the club the best and my thoughts will be with the team on Sunday and through to the end of the season."
Leeds chief executive Gary Hetherington added: "The club's most successful coach has also helped to forge a rugby operation with toughness, resilience and a strong desire to succeed, which his successor will inherit.
"Eight years is a long time for any head coach at the same club and we have enjoyed much success and endured some difficult times along the way when tough decisions had to be made. We have always come through strongly but I do believe our present predicament requires change and that this is the right call for the club.
"Brian is a man of the utmost integrity and passion for rugby league. He has so much to offer the sport and I have no doubt he will go on to achieve more success in the future."
McDermott, whose tenure with Leeds lasted 265 games, led the club to at least one major final in every season with the Rhinos.