Premier League - Chelsea sack Ancelotti
The London club released a statement following the 1-0 defeat at Everton, saying the club's performances had "fallen short of expectations".
The Italian moved to Stamford Bridge in 2009 and won a Premier League and FA Cup double in his first season.
His second season ended trophyless, and included a Champions League exit at the hands of Manchester United. Ancelotti also struggled to get the best out of £50 million January signing Fernando Torres, who has scored once in 18 games for Chelsea.
The club statement said: "This season's performances have fallen short of expectations and the club feels the time is right to make this change ahead of next season's preparations.
"Carlo will always be welcome at Stamford Bridge, where he will be given the reception and respect his position in our history deserves.
"Chelsea's long-term football objectives and ambitions remain unchanged and we will now be concentrating all our efforts on identifying a new manager.
"There will be no further comment until that appointment is made."
Ancelotti appeared oblivious to his fate in his post-match interview at Goodison Park, in which he said: "I am now on holiday - but I am not sure how long my holiday will be!
"We haven't arranged any meeting but I think in the next week, now the season is finished, the club can address my job and they will take a decision. I have to wait and see what happens. I don't have to say anything to the club - they can judge me on my job for two years."
He is the fourth manager to be sacked by Chelsea owner Roman Abramovich since September 2007, when Jose Mourinho was dismissed. Since then, Avram Grant and Luiz Felipe Scolari have also been axed. Only Guus Hiddink has avoided the chop, leaving the club voluntarily in 2009.
Hiddink and Porto's Andre Villas Boas are among the favourites to replace Ancelotti.