The former England boss has seen his side drop to 12th after a series of poor results and Wolfsburg officials have decided to end his tenure, replacing him with Pierre Littbarski, who served as McClaren's assistant.
"VfL have parted ways with Steve McClaren. Pierre Littbarski is taking over," the club said in a statement on Monday.
Wolfsburg chief executive Dieter Hoeness added: "We were not convinced that we could have a stable collaboration with Steve McClaren until the end of the season. We tried it, but unfortunately we have now lost the belief.
"Following the recent negative results we cannot underestimate our situation in the table. Being only one point clear of the relegation places, we are alarmed.
"Now it's just a question of increasing the gap to the relegation places as soon as possible."