On the back of impressing during his two-year stint with Lille, Fonseca was handed an opportunity to return to Serie A having previously managed Roma.
However, the appointment of the Portuguese has not worked out, the 51-year-old recording just 12 wins from his 24 matches in charge.
After Milan were held to a 1-1 draw by Roma on Sunday night, Fonseca told the awaiting media that he "is out", indicating that he had been sacked after the final whistle.
The Italian giants confirmed on Monday morning that they had opted to make the change in the dugout just six months into Fonseca's third-year contract.
What have Milan said?
In a short statement on their official website, Milan said: "AC Milan announces that Paulo Fonseca has been relieved from his duties as Head Coach of the Men's First Team.
"The Club extends its gratitude to Paulo for his great professionalism and wishes him the very best in his future endeavours."
Fonseca departs San Siro with Milan sitting in ninth position in the Serie A table with 27 points having been accumulated from their 17 fixtures.
As well as sitting eight points adrift of fourth place, Milan occupy 12th spot in the Champions League standings, albeit with four successive victories.
Who is in line to replace Fonseca?
A number of reports in Italy have claimed that Sergio Conceicao has been identified as the likely replacement for Fonseca.
The 50-year-old has been linked with the likes of West Ham United and Wolverhampton Wanderers at different times since leaving Porto in June.
Conceicao recorded 274 wins from 379 matches across a seven-year stint with the Portuguese giants, winning three Primeira Liga titles during his reign.
Should his appointment be confirmed, Conceicao will be taking on just his second managerial job outside of Portugal, his other coming at French club Nantes before joining Porto.
He is no stranger to Italian football, however, having represented Parma, Inter Milan and Lazio during his playing days.
Written by
Darren Plant