Hertha have recorded just four league wins in their opening 18 games this season, sitting in 14th position and only two points above the relegation places.
A decision regarding Labbadia’s future was taken after Hertha Berlin lost 4-1 at home to Werder Bremen on Saturday.
Labbadia was appointed Hertha manager in April last year, replacing former Germany manager Jurgen Klinsmann in the role, and guided the capital club to a 10th place finish.
"Week in, week out, Bruno and his coaching staff have invested a lot of hard work into the team's development and we would like to thank him greatly for that," said Hertha chairman Carsten Schmidt.
"Ultimately, however, the return of 17 points from 18 games leaves us in a very precarious situation.
“After much deliberation, we feel that a change of head coach can give the team fresh impetus. We will clarify his successor as head coach in the coming days."
Labbadia is followed out of the exit door by general manager Michael Preetz.
President Werner Gegenbauer said: "Hertha have a lot to thank Michael Preetz for. During his time here, he has established Hertha as a Bundesliga club.
"But looking at the development both in the last campaign and the current one, we have decided to take a different direction for his role in the future.
"Nevertheless, I want to express my sincerest thanks to Michael Preetz for his fine work for so many years."
Hertha are next in action against Eintracht Frankfurt on January 30.
