The former Blackpool boss has left the London club by mutual consent following a meeting with chairman Steve Parish in the wake of Monday's 4-1 home defeat at the hands of Fulham
Holloway guided the club to England's top flight via the Championship playoffs last season, but he leaves Palace 19th in the table with just three points.
That victory was against bottom club Sunderland, which has failed to win all season.
"Ian's contract at Crystal Palace has come to an end by mutual consent," Palace co-owner, Steve Parish, said at a press conference.
"Ian felt that a new approach might help keep us in the division. I've enjoyed every minute of working with Ian. He leaves our club with his head held very high.
"I'd like to put the record straight. We've never fallen out. We've worked together brilliantly. We feel we need to move on to progress."
Holloway added: "I have pride in the job we've both done. It wasn't easy. If Steve's last manager wasn't headhunted I wouldn't have been here.
"The four owners are unique. They are supporters of the club. Seven defeats out of eight is not good enough. I'm proud to have been involved with Palace and I wouldn't want to out-stay my welcome.
"I have to hold my hand up and say we didn't keep the spirit that got us up. We changed too much too quickly. I'm not saying my new signings aren't good enough but they need to buy into this football club the same way my other lads did.
"It is a privilege to have worked at Palace. With me out the way, the new man will have a chance to start again."
Holloway brought in 16 new players over the summer, two of which - Florian Marange and Stephen Dobbie - did not even make that list of 25 names submitted to the Premier League.
Both players, plus others who had been left out of the squad, hit out at Holloway while questions were raised about his ability to plan for a season in the Premier League.
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