The Scottish manager is out at JELD-WEN field following just two wins in the team's last six league games and an eighth place standing in the Western Conference.
Owner Merritt Paulson made the separation official in a press conference, citing "fundamental philosophical differences".
"John’s charisma is second to none and we could not have asked for a better ambassador for the game of soccer as we made our launch into MLS," Paulson said. "We had a terrific record last year as an expansion team under John and he provided us with some amazing moments and memories that will forever be a positive part of our MLS history."
Rumors swirled in June that Spencer's was on the line against the Seattle Sounders. Portland won, 2-1, but beating the Cascadia rival only allayed Spencer's tenure for two more losses. Between 3-0 defeats to the Colorado Rapids and Real Salt Lake, the Timbers posted a surprise win over the league-leading San Jose Earthquakes.
General manager Gavin Wilkinson will take over as an interim manager.
"Gavin will assist me in locating a permanent head coaching replacement, who will likely be announced sometime this offseason," Paulson said. "He does not have sights on the long-term coaching job."
Portland collected 19 points from 17 games in 2012 under Spencer, pitting it eighth in the Western Conference. The club hasn't won a road game all season.
Follow ZAC LEE RIGG on or shoot him an email
Goal.com has a new podcast! Goal Daily Podcast is a MUST for all Soccer fans and discusses the very latest news and views. What’s more when you sign up the service is FREE for the first month and you can cancel anytime.