The 48-year-old was reportedly let go on Monday night just days after expressing he felt "incredibly supported by the board".
The 2021 Premiers were expected to improve upon last year's 14th-place finish but had made little progress on that front, winning only seven out of 20 games so far in 2025.
Goodwin was contracted through to the end of 2026 but it is believed he was informed by the club board on Monday night that they had lost faith in his ability to turn things around in the right direction.
A press conference confirming Goodwin's sacking is expected to take place in Melbourne at midday (AEST) on Tuesday.
Melbourne have now missed the finals in successive seasons, with the club arguably hitting rock bottom just last week when squandering a 46-point three-quarter time lead to lose to fellow non-finalists St Kilda.
But even then, Goodwin remained upbeat about his future, telling reporters he was feeling "incredibly supported by the board - I have for nine years.
“We’ve been able to go through these challenges before with clarity and strength and stability to create success.
“In 2019 we finished second last, two years later we won the flag. You can’t get consumed in noise.
“All you can do is be really clear about your strategy, your process and understand the challenge ... to build the next great team.”
Goodwin steered the Demons to their first Premiership in 57 years just two seasons after that second-last placed finish in 2019.
Following a review of the football department at the end of 2024, club management promised sweeping changes to the off-field leadership if there was to be no significant improvement in results.
Goodwin's payout for the remainder of his contract will reportedly be in the vicinity of $900,000.
Club legend Garry Lyon was "stunned" and "totally shocked" to learn of the news during breakfast radio on Tuesday morning.
"I had no heads up on this, whatsoever," Lyon said on SEN 1116 Melbourne.
"I can't get my head around it. I thought there would be a review at the end of the year to determine (his future).
"Premiership coaches are pretty rare at Melbourne. He will be a hero of this football club forever and a day, but that obviously doesn't guarantee your tenure. This is a massive call."