The 53-year-old Israeli, is a close friend of Chelsea owner Roman Abramovich, is credited with leading the club to their first ever Champions League final and also oversaw their late surge for the league title, taking Manchester United down to the final day of the season.
The club announced the sacking in a statement on their official website.
"Chelsea Football Club can confirm that Avram Grant has had his contract as manager terminated today (Saturday)," the statement read.
|"Everybody at Chelsea FC would like to thank Avram for his contribution... "|
Chelsea club statement
"This follows meetings over the last two days. Everybody at Chelsea FC would like to thank Avram for his contribution since taking over as manager last September.
"We will now be concentrating all our efforts on identifying a new manager for Chelsea and there will be no further comment until that appointment is made."
Grant may return to a job upstairs at Stamford Bridge as director of football, a post he held under Mourinho before he was plucked from relative obscurity to occupy one of the hottest seats in football.
Names in the frame to succeed Grant include Barcelona's Frank Rijkaard, Inter Milan coach Roberto Mancini, Russia's Dutch boss Guus Hiddink and Manchester City manager and former England boss, Sven-Goran Eriksson.
Rijkaard, a friend of Frank Arnesen, who controls Chelsea's scouting network, has just been released by Barcelona after failing to win a trophy for the Spaniards in the last two seasons
Hiddink, like Grant, is a close friend of Abramovich and is regarded as the world's best tactician.
Abramovich is currently paying Hiddick's salary to manage Russia and while there is no doubting his pedigree, he has not been involved in club football for some time having had recent spells with the South Korean and Australian national teams before taking the Russian job.
Eriksson, who boasts an impressive record at club and international level, is understood to have rejected the Chelsea job on two previous occasions, although his future at Manchester City is unclear.