The team announced the moves in a news release Saturday.
Oates, a former star player for the Capitals, had one season left on his three-year contract. This was his first job as a head coach.
McPhee's contract was up. He has been the GM of the team for 17 years, drafting Alex Ovechkin and Nicklas Backstrom in the first round.
While Ovechkin has won three league MVP awards and again led the NHL in scoring this season with 51 goals, the Capitals haven't made it past the second round of the playoffs during the Russian forward's tenure.