Neville, 49, spent three seasons at Portland, but the Timbers are 13th in the 15-team Western Conference with just four wins from 14 matches this season.
His departure came on the first day of the league's mid-season break for the World Cup, which begins just over two weeks in the United States, Canada and Mexico.
"This off-season we had pointed discussions about the areas we needed to build on and improve," Timbers general manager Ned Grabovoy said.
"Ultimately, we have not seen the progress we've needed to, and most importantly, results have fallen well short of expectations."
Neville had previously been in charge at Inter Miami for two years until he was sacked in June 2023 with the club in last place.
Six months later, he was hired by the Timbers.
"In my nearly two decades of owning and operating the Portland Timbers, there are very few people I have enjoyed working with more than Phil Neville," Timbers owner Merritt Paulson said.
"Phil has outstanding leadership qualities and a boundless sense of positivity even in the face of adversity.
"I cannot thank Phil enough for his tireless dedication to this club."
Nevile guided the Timbers into the playoffs for the past two years, losing in the first round each time.
"I realize we're in a results business, and the results haven't been to the expectation of this football club," Neville said.
The Timbers' next game after the break is at Seattle on July 17th.