The 52-year-old took charge in February 2011 following the dismissal of Jose Antonio Camacho and narrowly saved the club from relegation last season.
But three defeats in a row at the start of this term have left los Rojillos rock bottom of the Spanish top flight and seen Mendilibar pay the ultimate price.
Osasuna president Miguel Archanco announced the decision on Tuesday: "We will find a young coach who is committed to using young players."
Mendilibar accepted the firing but said that he believes he could not have achieved more in the situation he was in at the Liga minnows.
"This is the law of life, these things happen," the coach told reporters on Wednesday.
"I want to acknowledge the work of all the people at Tajonar [Osasuna’s training facilities], the players, the media and the fans.
"This is a board decision and I have to accept it. The board has decided that I will not continue, period. They will have their reasons for it.
"If we have not done more it is because we could not, but I have given everything that I have. I thought we were going to get things done. So I do not regret having continued with Osasuna. It was not easy and it isn’t now. I hope the squad can move forward.
"This club has nothing to do with the club that was here when I arrived."
The club are currently in their 14th consecutive season in La Liga and could appoint a new coach before the weekend, when they travel to Getafe.