Sheldon Keefe will take over the head coaching job.
Babcock was in his fifth year with the organization, totaling 173 wins in 351 games. He led Toronto to the playoffs in each of the last three seasons, setting a franchise record with 105 points in 2017-18.
However, the Maple Leafs were eliminated in the first round of the playoffs in all three years and haven't won a postseason series since 2004.
There were high expectations heading into 2019-20, but the squad is in fifth place in the Atlantic Division after six straight losses.
Babcock has spent 17 years as an NHL head coach, mostly with the Detroit Red Wings. He helped them win a Stanley Cup title in 2008, but the 56-year-old wasn't able to find the same success in Toronto.
"At this time, we collectively felt that it was best to make a change to Sheldon Keefe," Leafs president Brendan Shanahan said in a release, per the Toronto Sun. "Sheldon's record with the Marlies in terms of development and on-ice success during his time in our organization has compelled us all to feel that he is the right person to take us to the next stage in our evolution."
Keefe spent three years in the NHL as a player before transitioning to coaching. He most recently coached the Toronto Marlies in the American Hockey League, an affiliate of the Maple Leafs.
The 39-year-old will try to get the most out of a talented roster that features John Tavares and Auston Matthews.