It is believed former Barcelona manager Pep Guardiola has been targeted as his replacement by owner Roman Abramovich.
The club reacted swiftly to the 3-0 loss in Italy last night which took their hopes of reaching the last 16 out of their hands, and put them at risk of becoming the first holders to fail to reach the subsequent knockout phase.
The Blues have also failed to win any of their last four Premier League games, a run which has seen them slip from top to four points behind leaders Manchester City.
A club statement read: "Chelsea has parted company this morning with manager Roberto Di Matteo.
"The team's recent performances and results have not been good enough and the owner and the board felt that a change was necessary now to keep the club moving in the right direction as we head into a vitally important part of the season.
"The club will be making an announcement shortly regarding a new first-team manager."
Immediate attention will turn to whether Abramovich can lure Guardiola out of a year-long sabbatical from football.
Guardiola was a reported target for the Blues in the summer despite Di Matteo's Champions League and FA Cup success which led to him being given the job on a permanent basis.