The manager had held his post since 2008 and guided the club to an MLS Cup final appearance but will depart following the team's final two games.
Hyndman, who has been with the club since 2008, will coach his final home game Saturday when FCD hosts the Seattle Sounders, before finishing up his tenure as coach on the road in San Jose.
“I truly appreciate the opportunity to be a part of the FC Dallas family for the last five years,” Hyndman said in a club statement. “After a lot of thought and consideration, I feel the time is right for me to step down as head coach of FC Dallas."
FC Dallas appeared to be in line for a resurgent 2013 after jumping out of the blocks to the tune of an 8-2-3 start. The wheels fell off starting in June, though, with the club only winning twice since and finding itself eliminated from postseason contention with two games remaining.
In his time at FC Dallas, Hyndman led the club to an MLS Cup final appearance but came up short of lifting the trophy when the Colorado Rapids struck in extra time of their clash at BMO Field in Toronto in 2010. Hyndman won MLS Coach of the Year honors that season, and he also oversaw the first victory by an MLS team on Mexican soil when FCD defeated Pumas UNAM in the 2011 CONCACAF Champions League group stage.
Overall, Hyndman is 62-57-58 as a manager. The club stated that it will begin a search for his replacement immediately.