The Royals sit in 19th place in the top-flight, four points from safety, after a 2-1 home defeat to fellow relegation candidates Aston Villa on Saturday.
Reading have lost four successive Premier League games with only goals scored keeping them off the bottom.
McDermott, 51, took over as caretaker manager at the Madejski Stadium in 2009 before being named full-time boss the following year.
He guided Reading back to the top flight last season for only the second time in their history but has been relieved of his duties as the club look to turn around their form in time to secure Premier League survival.
A club statement read: "Reading Football Club has announced today the departure of Manager Brian McDermott. Owner Anton Zingarevich wishes to place on record his thanks to Brian who had achieved great success with the club since taking over as Manager in December 2009.
"Brian gained promotion to the Barclays Premier League last year for only the second time in the club’s history thanks to a remarkable run at the end of last season. However, in our current situation, owner Anton Zingarevich felt that a change was necessary.
"The search for a successor will start immediately and it is hoped that a new Manager will be in place as soon as possible to lead the fight against potential relegation."
It takes the number of top-flight managers to lose their jobs this season to four. Mark Hughes (Queens Park Rangers), Roberto Di Matteo (Chelsea) and Nigel Adkins (Southampton) were also sacked.
With QPR showing signs of life under Hughes's replacement Harry Redknapp, Reading will have their work cut out to survive, especially as their next two matches are away to leaders Manchester United and Arsenal.
They also host champions Manchester City and Liverpool before the end of the season.