"After numerous discussions and careful consideration with coach Adelman, we have mutually agreed to part ways," Rockets General Manager Daryl Morey said in a statement.
The team went 193-135 during Adelman's tenure, including a 43-39 this past season -- good for last place in the NBA's Southwest Division and out of the playoffs for the second straight year.
Adelman, 64, took the Sacramento Kings to eight straight playoff appearances from 1998 to 2006, and then took a year off before being hired by the Rockets May 23, 2007.
"I have enjoyed my time in Houston," Adelman said. "We accomplished quite a bit, despite overcoming numerous obstacles during the past few years."
He compiled a 945-616 in two decades of coaching the Portland Trail Blazers, Golden State Warriors, Kings and Rockets, ranking eighth on the all-time wins list for NBA coaches.
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