The Serbian became Bologna manager for the second time in 2019 and he has been in charge while battling a severe form of leukaemia.
"Now, unfortunately the time has come for a change in the leadership. It's a difficult decision but one that we had to take for the good of the team and the club," Bologna Chairman Joey Saputo said in a statement.
"Even if Sinisa Mihajlovic is no longer Bologna coach, the club and everyone involved in it will be at his side until he is completely recovered, and also in the next stages of his career," added Saputo.
Mihajlovic took over at Bologna in January 2019 with the team stuck in the relegation zone and performed a remarkable transformation as he led them to a 10th place finish.
Bologna are now in 16th place with three points from five games after three draws and two defeats. They finished last season in 13th place.
Bologna next host Fiorentina on Sunday.
The 53-year-old also won two Serie A titles and four Italian Cups as a player with Lazio and Inter Milan.
