The 46-year-old will be replaced by academy coach Pierre Sage.
"Olympique Lyonnais would like to thank Fabio Grosso and his assistants for their dedication and professionalism since taking over the professional team," Lyon said in a statement.
Former Italy international Grosso, who played for Lyon between 2007 and 2009, was appointed in September as a replacement for Laurent Blanc.
Under Grosso, Lyon claimed their first league win of the season by beating Stade Rennais earlier this month, but were unable to move off the bottom of France's top flight.
During the Italian's short reign, he was involved in an attack ahead of Lyon's clash against Marseille last month, which left him bloodied and dazed after being hit in the face and scalp by shards of glass when rocks were thrown at the team bus.
Lyon travel to face Lens on Saturday.