The 45-year-old replaced Alex McLeish in June 2012 but following a poor run of results, which have left Villa in the bottom three of the Barclays Premier League, the club announced they have parted company with the Scot.
A statement on the club's official website said: "Aston Villa Football Club has parted company this evening with manager Paul Lambert.
"First-team coach Scott Marshall and goalkeeping coach Andy Marshall will continue to prepare the squad for Sunday's FA Cup tie with Leicester City at Villa Park.
"The club would also like to place on record its thanks to Paul and take this opportunity to wish him every success in the future.
"The club will announce a new manager in due course. There will be no further comment from the club at this stage."
Lambert had signed a new contract extension in September last year, shortly after a 1-0 win over Liverpool took them to second place in the table.
But Villa's season soon collapsed including a dismal run of 659 minutes without a Premier League goal which ended in a defeat to Chelsea earlier this month.
Nevertheless Villa chiefs showed every sign of resisting the growing unrest among Villa fans and keeping faith in the Scot despite their plunge into the relegation zone.
Lambert remained defiant after Tuesday night's 2-0 defeat at Hull, during which some Villa fans unfurled banners calling for his removal.
He insisted: "You can't feel sorry for yourself - you've got to pick yourself up and go again."
But the miserable defeat to the Tigers clearly convinced Lambert's previously loyal backers that it was time to look elsewhere in a bid to keep them in the top flight.
The announcement of Lambert's departure comes just hours after the Birmingham Mail kicked off a campaign for his exit.
Under a banner headline reading 'Birmingham Mail says: Lambert Must Go!', the newspaper said: "Paul Lambert is not the man to save this club from relegation and the long-term damage that disaster will bring."
It added: "No progress has been made under Lambert. In fact, this once mighty club is now staring relegation in the face."
Former Tottenham boss Tim Sherwood, current Real Madrid assistant Paul Clement and United States head coach Jurgen Klinsmann have already been touted as possible front-runners to replace Lambert.
Sherwood has been installed as 5/4 favourite in Sky Bet's market for the job.