The Knicks, who were the toast of the NBA last month when unheralded bench player Jeremy Lin inspired a magnificent run, have lost eight of their last 10 games.
D'Antoni's resignation came less than 48 hours after the Knicks lost their sixth consecutive game and fell into a tie with the Milwaukee Bucks for the eighth and final playoff spot in the Eastern Conference with an 18-24 record.
Yahoo! Sports initially quoted an unnamed source as saying: "It was a mutual decision to no longer coach the Knicks."
NBA.com then confirmed the announcement and reported that Knicks assistant Mike Woodson, former head coach of the Atlanta Hawks, will serve as interim head coach.
The Knicks were not immediately available for comment but are expected to hold a news conference at Madison Square Garden before Wednesday's game against the Portland Trail Blazers.
D'Antoni, the former Phoenix Suns coach who was named Coach of the Year for the 2004-05 NBA season, was hired by the Knicks in May 2008. He compiled a 121-167 record during his tenure, which included a first-round playoff loss last year.
After a poor start to the current NBA campaign, the Knicks revived their playoff aspirations when D'Antoni inserted Lin at point guard, sparking a seven-game win streak to reach 15-15.
The surge came without All-Star Carmelo Anthony, who was out with injury, and Amar'e Stoudemire, who was absent due to a death in his family.
The free-flowing attack that marked the winning streak was never the same since the return of Stoudemire and Anthony, who prefers handling the ball to create his scoring opportunities.
Since Anthony's return, and with defenses focusing on stopping Lin's drives to the hoop, the Knicks have gone 2-8.
D'Antoni, who compiled a 253-136 record in five seasons with the Suns and two-time league Most Valuable player Steve Nash, was brought into a difficult situation in New York.
The Knicks were shedding bad contracts to create salary room in time for 2010's illustrious free agent class that included LeBron James, coveted by New York.
After failing to lure James to New York, the Knicks signed free agent Stoudemire, who had played for D'Antoni in Phoenix.
The Knicks then pulled off a blockbuster deal at last year's trade deadline to bring in Anthony from the Denver Nuggets, and they advanced to the playoffs with a 42-40 record before being swept in the first round by the Boston Celtics.
D'Antoni, believed to have opposed trading for Anthony, tried to install a motion-style offense under the direction of Lin, the NBA's first Asian-American player whose dazzling play sparked a craze dubbed "Linsanity."
But that system did not seem to gel with the talents of Anthony, whose 21.3 scoring average this season is more than three points below his career average.