The 42 year-old's assistants Sergio Raimundo and Miguel Miranda have also left the club with immediate effect.
Montgomery, who arrived from Australian A-League Men side Central Coast Mariners last September, was under pressure following the team's failure to make the top six of the cinch Premiership last month.
The board branded it "simply unacceptable" in a statement released on April 17.
The former Sheffield United midfielder's predicament worsened on Sunday when Hibs slipped to ninth in the table after crashing to a 4-0 home defeat by Aberdeen.
The embattled manager pleaded for "patience" in his post-match press conference, adamant he was equipped to spark an upturn over the summer.
But it was announced on Tuesday morning that Montgomery had been "relieved of his duties".
"As a Board this was not a decision we made lightly, but felt it a necessary one to move the team forward," read a statement from the Gordon family, who own the Edinburgh club.
"Although Nick and his coaching team worked tirelessly, their efforts didn't deliver the results we had hoped for.
"We'd like to thank Nick, Sergio and Miguel for all of their hard work and dedication, and wish them all the best for the future."
Former captain David Gray will take charge of the team for their last two games of the season against Motherwell and Livingston.
It is the fourth time the 36-year-old coach has been called upon to step into the breach on a caretaker basis in less than two-and-a-half years after he did likewise following the sackings of Jack Ross, Shaun Maloney and Lee Johnson.
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