Magath, well known for his drastic training methods and hardline approach to discipline, became the first coaching victim of the Bundesliga season following a meeting with the board of directors.
His team have lost their last four matches without scoring a goal, leaving them with five points from their first eight games.
"The Wolfsburg board of directors and Felix Magath have agreed to terminate the cooperation," said the club in a statement on its website, adding that the separation was "amicable."
"The board of directors regrets that it has come to this."
Wolfsburg went on a spending spree in the close season as they attempted to improve on last season's eighth place but it has still to yield dividends and 59-year-old Magath had begun to introduce extra training sessions.
Magath, whose nickname "Quaelix" is a combination of the German verb for torture and his first name, helped Wolfsburg escape relegation by the skin of their teeth at the end of the 2010/11 season as they finished 15th, two points about the relegation play-off spot.
"We want to express our thanks to Felix Magath explicitly," said chairman Francisco Javier Garcia Sanz.
"He has, during his two terms with Wolfsburg, showed tremendous commitment and great achievements for our club and the city of Wolfsburg and the sport in the region."
