Willingham, 50, coached the Fighting Irish for three seasons. His teams have had an overall record of 21-15, including 6-5 this year.
"The University has determined that Tyrone Willingham will not be retained as the Notre Dame head football coach, and I informed Tyrone of that decision this morning," Athletic Director Kevin White said.
White praised Willingham as a man of "impeccable integrity and tremendous character" and said the football program has never been stronger in terms of its academic performance.
"At the end of the day, we simply have not made the progress on the field that we need to make," White said. "Nor have we been able to create the positive momentum necessary in our efforts to return the Notre Dame program to the elite level of the college football world."
Notre Dame will play in the Insight Bowl Dec. 28 against a Pac-10 opponent.
Willingham, 50, who formerly coached at Stanford, became the Irish coach Jan. 1, 2002, signing a six-year contract.