The Lakers went 21-61 in 2014-15, Scott's first season in charge, then went 17-65 this season.
His contract included team options for next season and a fourth season.
"We would like to thank Byron for his hard work, dedication and loyalty over the last two years, but have decided it is in the best interest of the organization to make a change at this time," general manager Mitch Kupchak said in a statement Sunday night.
The statement added that a search for Scott's replacement will start immediately.
The Los Angeles Times reported that Scott was informed of the team's decision following a playoff loss by the Lakers' NBA Development League affiliate.
Following the season, Kupchak said Scott did an "excellent job" guiding an undermanned roster through a season that had little go right aside from Kobe Bryant's farewell tour.
Bryant wound up averaging 17.6 points in 66 games, including a 60-point outburst in his finale against the Utah Jazz.
Scott, 55, played on three of the Lakers' "Showtime" championship teams in late 1980s.
As a head coach, he guided the New Jersey Nets to Eastern Conference championships in 2001-02. After 3 1/2 seasons in New Jersey, he became the head coach of the New Orleans Hornets for five-plus seasons and later the Cleveland Cavaliers for three seasons.
Overall, Scott has a 454-647 (.412) regular-season coaching record and a 33-24 (.579) postseason coaching record.