The move came three days after Lakers president of basketball operations Magic Johnson stepped down from his role with the organization. Johnson held an impromptu press conference Tuesday night and announced his decision to leave the team.
Walton finished his third campaign as the Lakers' head coach with a disappointing 37-45 record in a season that began with high expectations after the acquisition of star forward LeBron James.
Walton had two years remaining on his five-year contract.
"We would like to thank Luke for his dedicated service over the last three years," Lakers general manager Rob Pelinka said in a statement. "We wish Luke and his family the best of luck moving forward."
Sources told ESPN and Yahoo Sports that former Cleveland Cavaliers coach Tyronn Lue is a strong candidate to replace Walton in Los Angeles. Philadelphia 76ers assistant coach Monty Williams is also a potential candidate in the Lakers' head-coaching search, according to ESPN. Pelinka will run the league-wide search for the team's next coach.
"I want to thank [Lakers controlling owner] Jeanie Buss and the Buss family for giving me the opportunity to coach the Lakers," Walton said. "This franchise and the city will always be special to me and my family."
Walton had a 98-148 record in his three seasons with the franchise. Former Lakers executive vice president Jim Buss and then-general manager Mitch Kupchak hired Walton in 2016.