The former Manchester United and Netherlands defender departs with Cincinnati second bottom in the Eastern Conference after just four wins from 25 games.
Tyrone Marshall, who is coach of the Under-19 team, takes over on an interim basis while a permanent replacement is sought.
Stam joined the club in May 2020 and presided over 47 games with the MLS club, but won just eight, drawing 13 and losing 26.
The team's poor form forced club president Jeff Berding to take action, with Stam followed out of the door by assistant coaches Said Bakkati and Yoann Damet.
"During our nearly two-month process to identify the next general manager for FC Cincinnati, it was apparent that a head coach change was necessary. Therefore, after a great deal of deliberation, the club has made the decision to now move to the future with Jaap no longer serving as head coach," Berding said.
"We believe a change in leadership is in the best interest of the club at this time, and a new general manager will lead the search for a new head coach. We thank Jaap for everything he has done for FC Cincinnati during his time here, and we wish him the best as he can now head home to be with his family."
Berding also had words of support for former Jamaica international Marshall, who joined the club this year from Real Salt Lake.
"Tyrone has been a valuable addition to our coaching staff since he arrived earlier this year with plans to be the future coach of our MLS2 team," said Berding.
"He has shown his coaching ability and leadership qualities, and he is the right person to inject new energy into the locker room and help our squad finish 2021 strong with an eye to the future."