Reid, a former Accies player, took over the First Division club in 2005 and had been the Scottish Football League's longest-serving boss.
A statement on the club's official website read: "The club would like to thank Billy for his almost eight years in charge - a period which has seen the club at its highest level in almost 80 years, with three seasons in the SPL - including a seventh-placed finish - three Scottish Cup quarter finals and two Ramsdens Cup Finals.
"The decision to separate was an amicable one. Billy felt he needed a fresh challenge, and the club was like-minded.
"It was simply and naturally felt that it was the right thing to do at the right time. Billy has already indicated that he will be at Dunfermline to support the team on Saturday and will be at the home game v Airdrie Utd next Tuesday as well."
Alex Neil, club captain and U20 coach, and academy director Frankie McAvoy will assume first-team duties until the end of the season.