He only signed a new three-year deal in the summer under former chairman Jeff Moore but with Moore gone Thompson's future came under further scrutiny from new chairman John Armstrong-Holmes.
Now Holmes and the board have took action with Notts slipping into nineteenth in the table and have decided to axe him with immediate effect while there is still time for things to change.
Assistant boss John Gannon will take temporary charge for the crucial derby trip to Mansfield Town - his former club.
Full statement from Armstrong-Holmes.
"I want to thank Steve for assembling what I believe is the best squad we have had at Notts County for six or seven seasons.
"Its both sad and unfortunate that we haven't been collecting the points on the pitch that we expected.
"But we are in a results-orientated business and have taken we believe is necessary to rectify the situation.
"We would like to thank Steve for his efforts and wish him the very best for the future.
"We are looking at the way our footballing operation is run and will consider our options in respect of a replacement as quickly as possible."