The 56-year-old was informed he would be leaving Vicarage Road by the Hornets’ technical director Filippo Giraldi on Sunday.
Watford are 17th in the Premier League, three points above the relegation zone, ahead of Tuesday’s visit of Manchester City.
Assistant Craig Shakespeare is also expected to depart, with the club yet to confirm their decision.
Pearson took over from Quique Sanchez Flores, who lasted just three months, and became Watford’s third manager of the season after the September dismissal of Javi Gracia.
He was appointed in December, when the Hornets were bottom of the table, and won seven of his 23 games.
“We were not what I expected from us.”
🗣️ The boss' thoughts on last night's defeat...— Watford Football Club (@WatfordFC) July 18, 2020
Watford also travel to Arsenal on the final day of the season and have survival in their own hands ahead of the final week.
Back-to-back wins over Norwich and Newcastle gave them breathing space over the bottom three but the Hornets suffered a 3-1 defeat at relegation rivals West Ham on Friday.
Speaking after defeat to the Hammers, Pearson said: “We know that (we have the toughest run-in) but we have to cope with it.
“I can’t waste time thinking about what everyone else will do. It comes back to bite you where you don’t want to be bitten.”
