He steps down after allegations following a Daily Telegraph investigation, in which it was claimed he could offer advice on how to dodge rules on player transfers.
A video also saw him mocking Roy Hodgson, as well as criticising his assistant Gary Neville.
The Football Association said that Allardyce's conduct was "clearly inappropriate" and he would be leaving his post by mutual consent.
"Error of judgement"
The FA statement said: "He accepts he made a significant error of judgement and has apologised.
"This is not a decision that was taken lightly but the FA's priority is to protect the wider interests of the game and maintain the highest standards of conduct in football.
"The manager of the England men's senior team is a position which must demonstrate strong leadership and show respect for the integrity of the game at all times," the Football Association release concluded.
Allardyce is reported to be "deeply disappointed at this outcome", and offers a "sincere and wholehearted apology for my actions".
"I regret my comments regarding other individuals," he said.
Former England and Aston Villa defender Gareth Southgate will take over national team affairs as a caretaker manager.
100% success rate
Allardyce, 61, leaves the England job after just 67 days in charge, making his the shortest reign in the post's history.
He can boast a 100% record for his time in charge. This comes from victory in his single match at the helm, a World Cup qualifying victory over Slovakia.
In a managerial career spanning 24 years, he has been in charge of eight clubs including Sunderland, West Ham, Bolton Wanderers and Newcastle.