Hill will be replaced by former Munster coach Tony McGahan who joins the struggling Super Rugby franchise on a two-year deal, the team said on Monday.
Hill's dismissal adds to sweeping changes to the Rebels roster with captain Gareth Delve, and Wallabies backs Nick Phipps and Cooper Vuna, among a raft of players departing.
"There are many, many attributes that need to be in alignment to actually create a sustainable winning culture and that's not born overnight," chief executive Rob Clarke, who took over the club mid-season, told Reuters.
"In a young club like ours it will take some time but tough decisions obviously need to be made at various times to help to get toward that outcome."
McGahan helped Munster to two Heineken Cup titles as defensive coach before being named head coach in 2008. He ended his six-year stint with the Irish province in 2011 to join the Wallabies as an assistant coach to Robbie Deans last year.
It was unclear whether he would remain in the Wallabies role, with the Australian Rugby Union expected to fire Deans this week in the wake of the 2-1 series loss to the British and Irish Lions.
McGahan's appointment puts an end to speculation that Ewen McKenzie, outgoing coach of the rival Queensland Reds, would take over the Rebels post if overlooked for the Wallabies role.
McKenzie is in a two-horse race to replace Deans with former World Cup-winning coach Jake White, according to local media.
Tipped for a big improvement in their third season of Super Rugby, the Rebels have disappointed during a tough year marred by injuries and discipline problems with key players.
Hill, an assistant to inaugural Rebels coach Rod Macqueen, managed only four wins after taking over from the World Cup-winning mentor last year and has added only four victories this year with one match left to play in the regular season.
The Rebels were also shaken by off-field dramas surrounding marquee signing Kurtley Beale, who punched former Wales backrower Delve and another team mate in a boozy incident on a team bus in South Africa.
Beale and O'Connor joined the team last year in what was considered a recruiting coup, but have given the team little value due to a string of injuries and off-field problems.
The duo have a long discipline rap-sheet and were under fire during the Lions series after they were photographed at a fast food outlet at four in the morning days before the second test in Melbourne.
Clarke said "off-field elements" had been a factor in releasing the 23-year-old O'Connor, a Wallabies poster-boy.
Local media have speculated that Beale will head back to his native Sydney to rejoin the New South Wales Waratahs, and Clarke, overseeing the club's comprehensive review, was equivocal about retaining the wayward back.
"Kurtley's a quality player and he's an international player so we will look at all of those types of factors as we weigh up our roster and whether Kurtley himself wants to remain here or whether he sees his future elsewhere," he said.
Hill will coach the Rebels for their last game of the season at home to New Zealand's Highlanders on Friday.