BBC Sport confirmed the news, adding that Zinedine Zidane will take over as first-team coach. Zidane, a World Cup and UEFA Champions League winner as a player, had been in charge of the club's B team.
"I am going to put my heart and soul into this job so that everything works out well," Zidane said, per BBC Sport.
The decision comes one day after Real could only draw 2-2 with Valencia despite twice holding a lead. The Blancos sit third in the Spanish table, four points behind Atletico Madrid and two points behind Barcelona, who have an extra game to play.
Benitez finishes his tenure with a record of 17 wins, three defeats and five draws.
Here, Bleacher Report outlines a few suggestions for Zidane to turn around Real in the short term.
1. Sort out the back line
Benitez, a manager with a reputation for defensive expertise, enjoyed a good start to the season. Madrid conceded only three goals during the Spaniard's first 14 games, leading Marca to call the current back line the best in club history (via Ben Hayward at Goal.com).
Since then, results haven't been poor, but the team's defensive record isn't nearly as good. In back-to-back losses to Sevilla and Barcelona, Real Madrid conceded an alarming seven goals. The following game, a 4-3 victory over Shakhtar Donetsk in the UEFA Champions League, saw Real nearly blow a four-goal lead.
An eye-catching 10-2 victory over Rayo Vallecano last month might have bought Benitez more time, but even in that game, Real looked vulnerable before Rayo had two men sent off.
Finally, Sunday's draw with Valencia proved too much. Madrid played the final 22 minutes with 10 men following Mateo Kovacic's dismissal but took the lead for the second time in the 82nd minute through Gareth Bale. But Paco Alcacer struck just moments later to peg Real back again.
"With 10 players we had to make an effort, and the team has done," Benitez said, per Sky Sports. "We can only regret that after going 2-1 ahead, we conceded in the next minute."
He added: "Maybe we were lacking a bit of concentration after we went 2-1 up or maybe the opposition reacted very well."
Injuries have exacted a toll, to be fair, with influential center back Sergio Ramos missing significant time. Fortunately for Benitez's successor, Real Madrid's potent attack means the back line doesn't have to be dominant. Simply solidifying the defense would be enough.
2. Sort out the dressing room
It was no secret that Benitez had a poor relationship with Real's players, especially superstar Cristiano Ronaldo. According to a November report from Marca, the players had given Benitez the ironic nickname "Number 10," mocking his lack of top-level playing experience. In Sunday's draw with Valencia, Benitez appeared to annoy goalscorer Karim Benzema by substituting him, per Emlyn Begley of BBC Sport.
Guardian Sport, meanwhile, noted "rumours of unrest" in the squad, as well as displeasure among fans at the Bernabeu over the team's playing style. Clearly, Benitez wasn't doing something right.
Alternately, one could accuse the players of failing in their professional duties. As Bleacher Report's Karl Matchett wrote last month:
The chance of winning the title this season isn't exactly gone, but the squad is clearly in disarray and lacking the professionalism and direction within themselves to play as instructed, play to their highest level or put in the basic work required.
All the talent in the world won't do a thing without application, and from James Rodriguez to Isco, from Cristiano Ronaldo to Toni Kroos, performances, body language and clips of players on the bench indicate a seriously disturbing lack of respect to the manager in place—a manager who, lest it be forgotten, remains the last man to lead a team not called Atletico, Real or Barcelona to the title.
So was Benitez to blame? Or was it the players? After the sacking, it doesn't really matter.
But what matters is how Zidane turns the situation around. As Matchett hinted, Real have plenty of talent in the squad. Now, Zidane has to coax the best out of the players.
3. Get the best out of Ronaldo
Is Ronaldo still in his prime? That's a debate for another time. What's certain is that Ronaldo remains the top dog—and biggest ego—in Real's dressing room. In addition to coaxing the best from his entire squad, Zidane must do the same with Ronaldo.
Early this season, Ronaldo's performance level dropped by his own admission.
“I’ve been below my level, but I’ve had things going on," Ronaldo said in December, per the Daily Mirror. “I’m happy with the situation now but at the start of the season I have had personal problems."
Coming from one of the world's leading footballers, that seems an odd thing to say. But Ronaldo is human, with the same emotions as everybody else. If he was dealing with personal issues that affected his performance, that's only understandable.
To avoid a repeat, Zidane must ensure Ronaldo remains focused on football. At his best, Ronaldo is still capable of producing transcendent performances.