The Blues have suffered a dramatic dip in form in recent weeks, winning just two of their last eight Premier League games to slip down to ninth place - 11 points adrift of leaders Manchester United.
In all competitions Chelsea have now won three of their last four games, including a 3-1 FA Cup triumph over Luton Town in Lampard's final match at the helm, but the team's Premier League form has led to chairman Roman Abramovich pulling the trigger.
"This was a very difficult decision for the club, not least because I have an excellent personal relationship with Frank and I have the utmost respect for him," Abramovich said in a statement on the club's official website.
"He is a man of great integrity and has the highest of work ethics. However, under current circumstances we believe it is best to change managers.
"On behalf of everyone at the club, the board and personally, I would like to thank Frank for his work as head coach and wish him every success in the future.
"He is an important icon of this great club and his status here remains undiminished. He will always be warmly welcomed back at Stamford Bridge."
The club confirmed that Lampard has been sacked as "recent results and performances have not met the club's expectations, leaving the club mid-table without any clear path to sustained improvement".
The statement continued: "There can never be a good time to part ways with a club legend such as Frank, but after lengthy deliberation and consideration it was decided a change is needed now to give the club time to improve performances and results this season."
Lampard, who is expected to be replaced in the Chelsea dugout by former Paris Saint-Germain boss Thomas Tuchel, leaves Stamford Bridge with 44 wins from 84 games in charge of the club.
Lampard's record of 1.67 points per game is the fourth lowest of any permanent Chelsea boss in the Premier League era, while his average of 1.35 goals conceded per game is the worst in that time.