The defeat at Oakwell left the Tykes in 23rd place just after the halfway mark of the season with only 21 points from their 24 games.
Director Don Lowing said: "Due to the string of results we've had recently we have dispensed with Keith's services.
"This is a results-based business and we find ourselves at the bottom of the league and unfortunately it has not quite worked for Keith. The hard work he has put in hasn't really got out of it what he has put in so it's a sad day.
"The last home win was 1 September against Bristol City so it's a long time in coming and of course the supporters do get restless and they are looking to us to make a positive move."
Barnsley are now searching for their fourth manager in three and a half years following the departure of former Blackburn defender Hill, who replaced previous boss Mark Robins in June 2011.