Bolton, relegated from the Premier League last season, currently lie 18th in the npower Championship.
Chairman Phil Gartside said in a statement on the club's official website: "It is the right time for a change. We set a target at the beginning of the season and want to get back on track.
Coyle, who played for Bolton between 1993-95, said: "I have always been driven to act in the best interests of the club and care passionately about it.
"I had fantastic times here as a player and it has been a privilege to have held the post of manager.
"I want to thank the fans for their backing since I returned, the chairman Phil Gartside and the owner Eddie Davies for their support and friendship and the club's staff and players for all their effort and commitment.
"I wish everyone connected with Bolton Wanderers all the very best."
Academy manager Jimmy Phillips and head of academy coaching and development Sammy Lee will take temporary charge of the first-team squad, with their first assignment a week Saturday at home against Bristol City.