Dunlap, 55, was hired 10 months ago, replacing Paul Silas. The Bobcats started the 2012-13 season 7-5 -- matching the team's win total of the previous year -- but, even with a three-game winning streak to end the season, sagged to 14-56 the rest of the way.
The Charlotte season included an 18-game losing streak.
Only the Orlando Magic (20-62) had a worse record. The Magic lost its last three games.
"[General Manager] Rich Cho and I conducted our season-ending review and met with Coach Dunlap to reflect on this season. As an organization, it was decided that we needed to make a change with the head coach position," Bobcats President of Basketball Operations Rod Higgins said in a statement Tuesday.
"We want to thank Mike for his contribution and wish him the best in his future endeavors."
Charlotte, which started play in the 2004-05 season, has had one winning season, going 44-38 in 2009-10. The Bobcats were in the playoffs that season but were swept 4-0 in the first round by Orlando.