The Brazilian Football Federation (CBF) has confirmed that Dunga has been dismissed following the country's quarter-final exit.
Dunga signed a four-year deal in 2006 and led Brazil to success in the 2007 Copa America as well as last year's Confederations Cup, but he received frequent criticism for his defensive approach to the game.
Following the surprise 2-1 defeat to Netherlands, Dunga said: "Everyone knows that I came into the Brazil job for a four-year period."
However, on his return to his Porto Alegre home on Sunday, he had indicated that he could stay on. "I am going to rest for one or two weeks, and when the CBF president (Ricardo Teixeira) returns from Africa, we can talk. Things will depend on what he says. I worked with an excellent group of players and we lost just six games. We were the Copa America champions."
The CBF, though, has released him from his contract and now plans to announce his replacement in the near future.
"The CBF announces that the technical committee of the national team has been released," a statement on the CBF's official website read. "The new technical committee will be announced later this month."
Former AC Milan boss Leonardo is believed to be the main contender to replace Dunga.