The Black Cats slipped to 16th in the league after defeat at home to Wigan Athletic on Saturday, the last of Bruce's 98 game tenure at the Stadium of Light.
The 50-year-old joined from Wigan Athletic in June 2009 and guided the club to a 10th placed finish in the Premier League last season.
Chairman Ellis Short said: "This has been a difficult time for everyone at Sunderland and is not a situation that any of us envisaged or expected to be in.
"It is my job as chairman to act in the best interests of our football club at all times and I can assure everyone that this is not a decision that I have taken lightly.
"Sadly results this season have simply not been good enough and I feel the time is right to make a change.
"Steve has acted with honesty and integrity throughout, which is testament to the character and commitment he has shown during his time at Sunderland."
Despite finishing in the top half last season, 29 players came and went from the north-east during the summer, with Bruce spending close to £30 million on 12 new recruits.
However, with six defeats from the clubs opening 13 league games coupled with defeat in the Carling Cup second round to Brighton and Hove Albion, Bruce's 29-month reign as boss has come to an end.
Bruce will point to the sale of Darren Bent in the January transfer window, along with the loss of on loan striker Danny Welbeck and Ghanian Asamoah Gyan as to possible reasons behind the slip in form.
Former Celtic and Aston Villa boss Martin O'Neil is already the bookies favourite to take over from Bruce.
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