The defensive-minded Thibodeau, who had $9 million remaining on his contract, compiled a strong .647 winning percentage, but his Bulls went 23-28 in five trips to the playoffs.
Chicago went 52-32 this past season, finishing second in the Central Division to the Cleveland Cavaliers, who eliminated them from the playoffs in the Eastern Conference semi-finals.
Iowa State head coach Fred Hoiberg is believed to be a leading candidate for the job.
Friction between Thibodeau, team president John Paxson and general manager Gar Forman had escalated over the past two seasons.
Chicago Bulls chairman Jerry Reinsdorf said there had been a breakdown in the team's "organizational culture."
"When everyone is on the same page, trust develops and teams can grow and succeed together. Unfortunately, there has been a departure from this culture," Reinsdorf said in a statement.
Thibodeau spent 21 years in the NBA as an assistant coach before Chicago gave him his first head coaching job in 2010.
