The 45-year-old took charge 16 months ago, replacing Aitor Karanka at St Andrew's and leading the Blues to safety in the second tier.
But his first full season ended with Birmingham sitting 20th in the second tier and they would have finished lower had it not been for Derby County's points deduction.
A statement from Birmingham City said: "The Board of Directors believe this to be the necessary course of action and have acted swiftly ahead of the 2022/23 campaign.
"Despite a promising start to the [last] campaign, results fell below expectations as the season progressed and the Board feel that a change in management is in the best interests of the Football Club at this pivotal stage. The Board would like to place on record their sincere thanks to Lee for all of his efforts during his time at the Club.
"As a player and as a Head Coach, Lee’s commitment and dedication was never in question and we will always be thankful for his contribution both on the pitch and in the dugout. He will always be welcomed back to St. Andrew’s."
Bowyer's managerial debut came at Charlton Athletic where he spent three years in charge, leading them to both promotion to and relegation from the Championship.
As a player Bowyer was brought to Leeds United by Howard Wilkinson, signing in 1996 for £2.8m. He made 265 appearances for the club and scored 55 goals, becoming a fan favourite thanks to his fully committed all-action style that epitomised the club's ethos. He played a key role as the Whites put together a famous Champions League run and scored crucial goals against Anderlecht, Milan and Barcelona. He was voted Player of the Year by supporters in 2000/01, an accolade he had previously won thanks his performances during the 1998/99 season. Bowyer left Leeds in 2003 to join West Ham United.