Royals owner Anton Zingarevich has thanked the coach for his success at the club, but has relieved the 51-year-old of his duties in a bid to maintain Premier League football.
McDermott took over at the Madejski Stadium in late 2009 initially as caretaker manager following the departure of Brendan Rodgers.
After guiding the club to promotion last season as winner of the Championship, McDermott was named the League Managers' Association Championship Manager of the Year.
However, with the club sitting 19th in the Premier League and following a 2-1 loss at home to fellow relegation candidate Aston Villa, club owner Anton Zingarevich has decided to look elsewhere in a bid to ensure Premier League football for the club next season.
A club statement reads: "Reading Football Club has announced today the departure of manager Brian McDermott. Owner Anton Zingarevich wishes to place on record his thanks to Brian who had achieved great success with the club since taking over as Manager in December 2009.
"Brian gained promotion to the Barclays Premier League last year for only the second time in the club’s history thanks to a remarkable run at the end of last season. However, in our current situation, owner Anton Zingarevich felt that a change was necessary.
"The search for a successor will start immediately and it is hoped that a new Manager will be in place as soon as possible to lead the fight against potential relegation."