The club’s 1-0 defeat to Kilmarnock left Hibs ninth with six points. Assistants Liam Craig and Craig Samson have also departed, with John Potter taking interim charge.
Gray managed 107 games, recording 43 wins, 35 defeats and 29 draws after taking the role permanently in May 2024.
"Ultimately, this is a decision that we have not taken lightly, but unfortunately, one as a board we had to make due to the recent downturn of results and performances," said chairman Ian Gordon.
"Dave has been an inspirational figure at the club during his time here, and he has been a true friend and fantastic colleague to so many.
"On behalf of my family, I would like to personally thank him for everything he has done for us since we joined the club.
"As a person, he constantly set the standard with his attitude, professionalism and general work ethic and he will be sorely missed around the building by all the players and staff.
"On the pitch, he has delivered some incredible moments for our fans, and brought a level of stability and consistency that we haven't reached in recent years."