He spent less than one year in the position. The Blue Bombers missed the playoffs after finishing last in the CFL West Division standings with a 7-11 record.
"Obviously a decision like this is a very difficult one to make on many levels," head coach Mike O'Shea said in a release. "The reality of the situation is such that we simply weren't good enough on the defensive side of the football this season, and felt that we needed to go in a different direction in this regard.
"Gary is a good man and good football coach, and the Blue Bombers wish him well moving forward."
Etcheverry, who was hired last February, previously served as a defensive co-ordinator in Saskatchewan (2000, 2009, 2010), Ottawa (2004), B.C., (2001) and Toronto (1999).
He first joined the CFL's coaching ranks in 1997 as a defensive line coach with the Argonauts and later served as the team's head coach (2002) and president of football operations. Etcheverry also has previous coaching experience in the NFL, German Football League, CIS, Canada Junior Football League and NCAA.
There was no immediate word on a replacement or staffing plans for the defensive position coaches.
"The defensive staff are not under contract for next season," O'Shea said. "However the incoming defensive co-ordinator will have the opportunity to move forward with any of these coaches if he sees fit."