The Spaniard replaced Arsene Wenger in May 2018 but failed to turn around the club's fortunes during his 18-month spell in charge.
It's 2-1 defeat to Frankfurt in the Europa League Thursday was the side's seventh consecutive game without a win and Arsenal has slipped to eighth in the English Premier League.
In truth, pressure had been mounting on the 48-year-old for weeks with large pockets of fans questioning his tactical direction and calling for him to be sacked.
The club said the decision was made "due to results and performances not being at the level required."
"Our most sincere thanks go to Unai and his colleagues who were unrelenting in their efforts to get the club back to competing at the level we all expect and demand," said Arsenal director Josh Kroenke.
"We wish Unai and his team nothing but future success."
Former player and current first-team coach Freddie Ljungberg has been asked to take over on a temporary basis as the search for the new head coach gets underway.
Arsenal's next game is away to Norwich City in the EPL on Sunday.