The Trotters, relegated from the Premier League last term, currently lie 18th in the Championship after only three wins in their first 10 matches.
Chairman Phil Gartside said: "Owen poured his heart and soul into the job, both on and off the pitch, and he led our club with great dignity during some very challenging times.
"It is the right time for a change. We set a target at the beginning of the season and want to get back on track.
"I would like to place on record our sincere thanks to Owen, Sandy Stewart and Steve Davis for all their hard work at Bolton Wanderers."
Former Motherwell striker Coyle left Burnley in January 2010 to take up the hotseat at the Reebok Stadium after Gary Megson was relieved of his duties.
He led the club to safety from 18th position, but failed to keep his side in the top flight last campaign.
Coyle, who played for Bolton between 1993-95, said: "I have always been driven to act in the best interests of the club.
"I had fantastic times here as a player and it has been a privilege to have been manager.
"I want to thank the fans for their backing since I returned, the chairman Phil Gartside and the owner Eddie Davies for their support and friendship and the club's staff and players for all their effort.
"I wish everyone connected with Bolton all the very best."