Shell has had two tenures as coach of the Raiders. He became the first African-American head coach in the NFL when he took over the team in 1989.
His first stint lasted six seasons, but he made it through only one year this time before being dismissed. Oakland recorded a 2-14 record in 2006, its worst since a 1-13 mark in 1962.
The announcement came after Shell met Thursday with franchise owner Al Davis.
"While Art will no longer serve as head coach, he and Mr. Davis have discussed and will continue to discuss opportunities for Art to remain a valued member of the Raider organization," the team said in the statement.
Shell was voted into the Pro Football Hall of Fame in 1989 after having played with the Raiders for 15 seasons.