Grizzlies Chief Executive and Managing Partner Jason Levien said the team declined to offer an extension on Hollins' contract, which expires this month, and was no longer a part of the organization.
The move came after speculation that Hollins and the Grizzlies' management were at odds and intensified after Memphis was swept by San Antonio in the Western Conference finals.
"After a thorough internal process, which included conversations with Lionel and his representatives, we decided as an organization to move in a different direction," Levien said.
Hollins, 59, took over as the Grizzlies' permanent head coach in January 2009 after previously serving in an interim capacity in 1999-2000 and 2004-05. He recorded a 196-155 mark over four seasons, reaching the playoffs in each of the last three years.
This season Memphis racked up a franchise-record 56 wins in the regular season before downing the Los Angeles Clippers and Oklahoma City Thunder in the first two rounds of the playoffs.
Hollins has been mentioned as a candidate for vacant head coaching jobs with the Clippers, Denver Nuggets and Brooklyn Nets.
Interpol investigating stolen passports on missing flight
Susan Sarandon 'very excited' about daughter's pregnancy