"Cagliari football club communicates that it has relieved coach Roberto Donadoni and his staff of their duties," the Sardinian club said on its website.
"The club thanks him for his work and wishes him the best fortune in the continuation of his career."
Donadoni had been in charge of the club since last November, leading them to 14th in Serie A despite loaning top scorer Alessandro Matri to Juventus halfway through the season.
Five days after joining Juventus, Matri scored twice for them in a 3-1 win at Cagliari and he was bought by the Turin club last month.
Italian media said Donadoni was unhappy with that departure and was also upset with club president Massimo Cellino's decision to part company with David Suazo.
The Honduran forward, who spent eight successful years with the club before unhappy stints at Inter Milan, Benfica and Genoa, had been training with the squad and understood he would be offered a contract.
However, earlier this week Suazo was asked to leave and subsequently signed for Catania.
Donadoni coached Italy from 2006 until 2008, when he was sacked following an unimpressive Euro 2008 campaign.
The following year, the 47-year-old spent six months as coach of Napoli.
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