"We would like to thank Luke for his dedicated service over the last three years," said Lakers General Manager Rob Pelinka in a press release. "We wish Luke and his family the best of luck moving forward."
The news comes just days after Magic Johnson's surprise resignation as the Lakers president. Walton is leaving with two years remaining on his five-year contract.
Walton thanked the Buss family for the opportunity to coach the Lakers.
"This franchise and the city will always be special to me and my family," he said in the press release.
The team finished a frustrating and disappointing 37-45 in a season that began with massive expectations following Lebron James' arrival.
Former Cleveland Cavaliers coach Tyronn Lue is considered a strong frontrunner for the Lakers job, league sources told ESPN's Adrian Wojnarowski.
There have been rumors that Walton may be headed to the Sacramento Kings as their new head coach.
ESPN contributed to this report.