The Trotters have struggled under Lee this season and are languishing in the relegation zone. As such Lee, who was the assistant under former boss Sam Allardyce, had been under fire for his tactics.
After Allardyce left towards the end of last season, later taking the charge at Newcastle United, Lee was installed as the manager at the Reebok Stadium.
Chairman Phil Gartside told the club's official website: "This has been a difficult decision for all parties but we have agreed that the time is right.
"Sammy has played an important role in the club's recent history. We wish Sammy and Frank well for the future.
"Our efforts will now be to look for a replacement manager and to concentrate on the future."
Good Luck in the future Sammy from Bolton Wanderers Mad.