Assistant coach Danny Flynn was also let go, while the contracts of Bryan Trottier and Tom Coolen will not be renewed.
Nolan guided the Sabres to a league-worst record of 23-51-8 in 2014-15.
He was hired by Buffalo in November of 2013 and compiled a mark of 40-87-17 in just under two seasons.
The Sabres hold the best odds of winning the top pick in the upcoming NHL draft lottery.
This was Nolan's second stint in Buffalo after he spent two seasons with the Sabres and was the NHL's coach of the year in 1997.
In March of 2014, 4-1/2 months after returning to Buffalo, Nolan was signed to a three-year contract extension.
At the time, Murray was impressed by the job that Nolan was doing in what the GM called a "trying situation."