DePodesta had three years remaining on his contract.
The Dodgers finished fourth in the National League West in 2005 after going 71-91. Manager Jim Tracy left following the season by mutual agreement, and has already been hired to manage the Pittsburgh Pirates.
In DePodesta's first year in the Dodgers' front office last year, the team went 93-69 and won the NL West, qualifying for the post-season for the first time since 1996. They eventually lost to St. Louis in the division series.
The Dodgers struggled this season after catcher Paul Lo Duca was dealt last year to Florida at the trading deadline, outfielder Shawn Green was traded before the 2005 season and third baseman Adrian Beltre was not re-signed.
"I met with Paul DePodesta this (Saturday) morning and let him know that the Los Angeles Dodgers were moving on," said owner Frank McCourt said at a news conference. "I thanked him for his contributions."