The 52-year-old has overseen a poor run of form for Los Blancos, winning only three in the last ten games in all competitions.
Madrid has lost the last three La Liga games, and are currently ninth on the table, seven points adrift leaders Barcelona.
Lopetegui took charge at the Barnabeu a few days before the 2018 World Cup in June, following the departure of three-time Champions League winner Zinedine Zidane.
An official announcement by the club said the move “seeks to bring about a turnaround in the first-team’s fortunes at a time when all of this season’s targets are still achievable.”
Santiago Solari, who manages Real Madrid’s B team Castilla, has been appointed to take temporary charge of the team, and is expected to begin work on Tuesday.
Former Chelsea coach Antonio Conte – now out of a job after being sacked in the summer – is reported to lead the race to replace Lopetegui.
