McCarthy apologised yesterday for the performance against their Black Country rivals which left them in the relegation zone, but it would seem the result was one disappointment too many for owner Steve Morgan.
He has opted to relieve him of his duties after a run of 11 games without a win in the Premier League in addition to an FA Cup third round defeat to Championship outfit Birmingham City.
Morgan will now begin the search for the former Ireland and Sunderland manager's successor but in the meantime McCarthy's assistant Terry Connor will take over as caretaker boss.
A statement on Wolves' official website said: "Wolves have today announced that manager, Mick McCarthy, has left the Club with immediate effect.
"The Board took the difficult decision to terminate Mick's contract after a run of form which has seen Wolves pick up only 14 points in the last 22 League games, after a promising start to the season, culminating in yesterday's 5-1 defeat at home to West Bromwich Albion.
"Terry Connor will take charge of team training in the interim until a new manager is appointed.
"The Board would like to place on record their sincere thanks and appreciation to Mick McCarthy and he leaves with the very best wishes of everyone connected to the Club."
McCarthy was appointed as Wolves boss in 2006, he had previously managed Sunderland and the Republic of Ireland, leading them to the Championship title in 2008/9 season. For the past two seasons the 53-year-old had kept the club in the Premier League finishing 17th and 15th respectively.