The Bulls finished with the worst record in the 16-year history of the program following Saturday's season-ending 27-3 home loss to Pittsburgh.
Holtz -- son of legendary former college coach Lou Holtz -- managed a 16-21 overall mark in three season at the helm, including a 5-16 record in Big East Conference games.
After praising Holtz for stressing improved academics at South Florida, Athletic Director Doug Woolard said the move was made to improve the team's on-field performance.
"We must strive to put a more successful football program on the field," he said. "Beginning today, we will move in a new direction toward that goal."
"I believe we made some positive strides, most notably in our academics, that were helping to build a foundation for this program and I would have liked the opportunity to see it through," Holtz said. "But I understand the administration's decision and wish them nothing but success in the future."