Valencia have won none of their four matches since La Liga resumed after the World Cup.
They have won just one of their last 10 matches and sit 14th on the La Liga table, just one point above the relegation zone.
A 1-0 loss to Real Valladolid on Sunday proved to be Gattuso's last match in charge of Valencia.
The 45-year-old was given a two-year contract when he was appointed Valencia boss in June last year but lasted 18 La Liga games, winning just five.
"Valencia CF announce that this Monday, January 30th, the club and the first team coach, Gennaro Gattuso, have decided by mutual agreement to end the contractual relationship between the two parties," a statement read.
"The club wish to thank Gattuso for his commitment and work during his time in charge and wish him the best of luck for the future.
"The team will return to training this Tuesday, January 31st, under 'Voro' Gonzalez."
Valencia are up against Real Madrid in their next La Liga game on Thursday.
