Hollins's contract was scheduled to expire on June 30, but his departure from the organization was effective immediately, the team said in a statement.
Hollins had been coach of the franchise at various times over the past seven seasons, serving as interim coach for 60 games in 1999-2000 when the club were in Vancouver, and had a four-game stint during the 2004-05 season in Memphis.
He became the head coach during the 2008-09 season and has been in Memphis since.
Hollins had a 214-201 record, including a franchise best 56-26 this past season.
Speculation about Hollins's job swirled after the Grizzlies were swept in four games by the San Antonio Spurs for the Western Conference championship.
After finishing second to San Antonio in the Southwest Division, the Grizzlies had beaten the higher seeded Los Angeles Clippers in six games and shocked the top-seeded Oklahoma City Thunder in five to reach the conference finals.
"After a thorough internal process, which included conversations with Lionel and his representatives, we decided as an organisation to move in a different direction," said Jason Levien, Grizzlies CEO & managing partner in a statement.
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