Baker had been in charge of the Reds for six seasons and still had a year to run on his two-year contract but was dismissed following his team's loss to Pittsburgh in Tuesday's National League Wild Card Game.
"This was a very difficult decision to make," Cincinnati Reds general manager Walt Jocketty said.
"Dusty played an important role in the recent success of this organization, and we thank him for his contributions during his time here.
"We feel a change is necessary, however, if we are to continue to move the organization forward."
The Reds did not name a replacement.
They finished third in the NL Central division this season with a 90-72 record but lost their last six games in a row, including the Wild Card game against the Pirates, to drop out of the race for the World Series.