The news comes just three days after Magic Johnson stepped down as the president of basketball operations.
There were also rumors that LeBron James - who signed a four-year, $153.3 million contract with Los Angeles this offseason - didn't get along with Walton and wanted a new head coach.
Walton finishes his tenure with a 98-148 record. Lakers general manager Rob Pelinka will run the coaching search, a source told ESPN's Ramona Shelburne.
Walton's Lakers went 37-45 this season and rumors of a coaching change persisted throughout the disappointing year.
"I want to thank Jeanie Buss and the Buss family for giving me the opportunity to coach the Lakers", Walton said in a statement issued by the Lakers.
So who is going to be the Lakers' next coach?
The team did not make the playoffs in any of the three seasons.
Los Angeles was in fourth place in the Western Conference after beating Golden State last Christmas, but James strained his groin during the game.
With James obviously having substantial pull in the Lakers organization, especially with some defined executive leadership roles up in the air, being somebody James likes does nothing but bode well for Lue. After a tumultuous week, a potential power struggle instead ended with both men out of their jobs.
Luke Walton has been fired by the Lakers. "They did everything right, I'll say that".
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