The Royals have lost four successive Barclays Premier League games and sit 19th in the table, with only goals scored keeping them off the bottom.
McDermott, 51, took over as caretaker manager at the Madejski Stadium in 2009 before being named full-time boss the following year.
He guided Reading back to the top flight last season for only the second time in their history but has been relieved of his duties as the club look to turn around their form in time to secure Premier League survival.
McDermott has been part of the backroom staff at the Berkshire club since 2000, fulfilling a number of roles before taking the manager's position full-time in January 2010.
Reading issued a statement confirming McDermott's departure with Russian owner Anton Zingarevich believing having a new man in charge was essential.
"Reading Football Club has announced today the departure of manager Brian McDermott," the statement read.
"Owner Anton Zingarevich wishes to place on record his thanks to Brian who had achieved great success with the club since taking over as manager in December 2009.
"Brian gained promotion to the Barclays Premier League last year for only the second time in the club's history thanks to a remarkable run at the end of last season. However, in our current situation, owner Anton Zingarevich felt that a change was necessary."
Reading had been on a run of one defeat in seven games at the turn of the year but a spell of poor form has cost McDermott his job.
Home defeats to fellow strugglers Wigan and Aston Villa have no doubt hastened the decision to remove McDermott and the club have said they are actively searching for a replacement as soon as possible, with their next two games coming at Manchester United and Arsenal.
"The search for a successor will start immediately and it is hoped that a new manager will be in place as soon as possible to lead the fight against potential relegation," the statement concluded.
The Royals had been battling in and around the bottom three for the majority of the season but, unlike the likes of bottom side QPR who were able to invest heavily in the January transfer window, McDermott was limited in what he could spend.
He secured the signing of Daniel Carrico from Sporting Lisbon, although the Portuguese defender has only featured once for the Berkshire club.
Stephen Kelly came in from Fulham whilst the other two signings, Hope Akpan and Nick Blackman, both joining from npower League One sides.
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