"Terry Connor will take charge of team training in the interim until a new manager is appointed.
"The board would like to place on record their sincere thanks and appreciation to Mick and he leaves with the very best wishes of everyone connected to the club."
Wolverhampton are currently 18th in the Premier League and have emerged triumphant just once in their last 11 league matches.
Speaking after the defeat against West Brom, McCarthy said: "I apologies for the performance and I've never done that before in 20 years of management.
"But I feel it's warranted, we were awful in the last half an hour.
"It was my most difficult day as a manager. We capitulated which is not something associated with me or my teams."