The Cod Army have lost all of their last five games and, having accrued only four points since September, are in the League One drop zone.
Grayson, who guided Leeds United to promotion to the Championship in 2010, took charge of Whites loanee Ryan Edmondson in his role as Fleetwood manager.
Under Grayson, the striker scored two goals in 13 appearances across all competitions and now the 20-year-old faces a mid-loan manager change for the second season in a row after Keith Curle left Edmondson's former loan club Northampton Town in February of the 2020/2021 season.
What Leeds United said on outstanding Raphinha payment as Barcelona make another drastic move
Leeds United's new predicted Premier League finish after big change and alarming slide of rivals
Leeds United transfer news: Leeds ‘set aside club-record fee’ for striker deal, Southampton ‘willing’ to sell Whites target
Leeds United fans all express same Marc Roca opinion after debut Premier League appearance
'A risk not worth taking' - Title winner discusses Leeds United's latest summer transfer
Fleetwood announced Grayson's departure with a club statement on their website on Wednesday morning.
"Following a difficult run of results, Assistant Head Coach David Dunn will also depart and everyone at the club would like to place on record their thanks to Simon and David for their hard work and professionalism during his time at the club.
"The search for his replacement will begin immediately and we will issue a further update on the first team staff in due course."
Support the YEP and become a subscriber today. Enjoy unlimited access to local news and the latest on Leeds United. With a digital subscription, you see fewer ads, enjoy faster load times, and get access to exclusive newsletters and content. Click HERE to subscribe.