McMillan had coached the Trail Blazers for almost seven years, compiling a 266-269 record with the franchise. Only Rick Adelman and Jack Ramsay have coached Portland to more victories.
Portland began the season with seven wins in nine games, but has fallen to last place in the Northwest Division with a 20-23 record and has lost seven of its last nine outings.
The most recent setback was an embarrassing 121-79 blasting at the hands of the New York Knicks Wednesday. New York Coach Mike D'Antoni had resigned only hours before that game in what the Knicks said was a mutual agreement.
"Clearly the season to this point has not gone the way we had hoped it would and after talking with Nate we decided it was best to part ways," said Portland club President Larry Miller. "I want to personally acknowledge and thank Nate for his many contributions to this franchise and wish him nothing but the best for the future."
Portland will continue a seven-game road trip in Chicago Friday.
The Trail Blazers reached the playoffs in each of the last three seasons under McMillan, but lost in the opening round each time.
Wallace started 42 games for Portland this year with an average of 13.3 points per contest.
Oden has been plagued with injuries since Portland drafted him ahead of Kevin Durant with the No. 1 pick in 2007. He has not played a game in more than two seasons and wound up appearing in only 13 games for the Trail Blazers.