The former Real Madrid coach, who also had a one-game spell as manager of Wales in 1994, announced his decision at a televised news conference in Cardiff.
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He said he had been "a little disappointed with one or two things" after a May friendly defeat in Croatia but initially wanted to oversee the first three Euro qualifiers before reviewing the situation.
"I discussed things with the president after the Montenegro game, I gave my point of view and he gave his, and we came to the agreement that it may be better for everybody concerned if a change is made now," he said.
"As regards the next two games I think Wales are still very much in this group. Now the decision has been made, hopefully they will be able to get some positive results in the next two games.
"Although there is not too much time for the new man I still think the group is open and I will be there just like every other fan at Cardiff's new stadium rooting for them to get a result."
Toshack was not helped by the premature international retirement of some of Wales's leading players, most notably Ryan Giggs, who continues to ply his trade with aplomb at Manchester United while being touted as a future Wales manager.
