Kisnorbo will take charge of the Sky Blues until the end of the current campaign with Sydney sitting fifth with four matches of the regular season left.
Talay had faced an uncertain future for the past year after Sydney failed to make last season's finals.
The 49-year-old was handed a one-year extension last May, with Sydney having a clause in their favour to trigger a new deal for the 2026-27 season.
Sydney's hierarchy declined to activate that clause and the path now appears set for Talay to move to the club's cross-town rivals Western Sydney.
Discontent had built among Sydney's fans with Talay's style of play, the club's results and his overseas recruits, and the links to the Wanderers appear to have been the final straw.
"I would like to thank everyone at Sydney FC for the opportunity to lead this great club," Talay said in a statement.
"It has been a privilege to work with the players, staff and wider organisation, and I am grateful for the support from the members and fans. I wish the club every success for the future."
Kisnorbo will step into the role until the end of the season in what marks his first job back in Australia since he left Melbourne Victory to move to Yokohama F. Marinos.
The former Socceroo has not coached for almost a year after being sacked by the Japanese club, where he picked up just two wins from 10 games in charge.
His J-League disaster followed a similarly ill-fated experience in France with Troyes, who were relegated to Ligue 2 on Kisnorbo's watch.
While his most recent managerial spells have been far from impressive, Kisnorbo earned acclaim for nurturing a talented young group of players who have gone on to become national team players while at Melbourne City.
During his time at City, Kisnorbo won an ALM championship and two ALM premierships.
"Patrick is a highly regarded coach having won the A-League Championship and back-to-back Premiership titles," said Sydney FC chair Dr Jan Hendrik Voss.
"Recently, the club has been undergoing a strategic review process to identify a head coach for season 2026/27 to meet our ambitions of playing AFC Champions League Elite, winning the premiership, championship and the Australia Cup."
Kisnorbo will take charge of Sydney's remaining four games, which comprise a trip to Brisbane and an away derby with the Wanderers before home fixtures against Perth and Auckland.
"I am delighted to be joining Sydney FC," Kisnorbo said.
"This is a club with a proud history and high expectations, and there is a real opportunity to achieve something special this season.
"Our focus is to build consistency in our performances and to have the squad mentally and physically prepared for every game."
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