Skiles compiled a 162-182 regular season record since replacing Larry Krystkowiak and made the playoffs once, in 2009-10, when the Bucks lost to Atlanta in the first round.
Assistant Jim Boylan will assume head coaching duties for the remainder of the season.
The Bucks, 16-16 this season under Skiles, made Boylan's debut a success when they beat the Phoenix Suns 108-99 on Tuesday in Milwaukee.
"Scott and I met yesterday after practice and after some honest discussion, we both came to the conclusion that it was best to part ways," Hammond said in a statement.
"It is never an easy decision to make, but in the end a decision we felt was best for both parties." (Reporting By Steve Ginsburg in Washington; Editing by Peter Rutherford)