The 41-year-old Spaniard lasted just ten months in the role.
Munoz took over from Vladimir Ivic in December 2020 when Watford were in the championship and secured promotion to the Premier League by finishing second in the second tier.
Watford, who are notorious for dismissing managers, will be making a 13th managerial alteration since the Pozzo family took over the club in 2012.
The Hornets started the season on a bright note, beating Aston Villa 3-2 at Vicarage Road but have since lost four times in the top flight.
Saturday’s 1-0 loss at Leeds United prompted the club’s hierarchy to make Munoz the first managerial casualty of the 2021/2022 season.
"Watford FC confirms Xisco Muñoz has left his post as the club's Head Coach,” a club statement on Sunday read.
"The Board feels recent performances strongly indicate a negative trend at a time when team cohesion should be visibly improving.
"The Hornets will always be grateful to Xisco for the part he played in securing last season's promotion and wish him well for his future career in football.
"No further club comment will be available until the imminent announcement of a new Head Coach."
Watford's next game will be at home to Liverpool after the international break.
