The 45-year-old was relieved of his duties at White Hart Lane less than six months after he replaced Andre Villas-Boas in the dugout.
Sherwood's future was unclear throughout much of that reign, with constant speculation linking the likes of Southampton boss Mauricio Pochettino, Ajax's Frank De Boer and Holland coach Louis van Gaal to his job.
And Daniel Levy confirmed Sherwood's departure in a statement on the club's official website on Tuesday afternoon.
"We appointed Tim mid-season as someone who knew both the players and the club. We agreed an 18-month contract with a break clause at the end of the season and we have now exercised that option," the statement read.
"Moving forward, now the season is over, we shall embark on the process of finding a new head coach.
"We have a talented squad and exciting young players coming through. We need to build on this season, develop our potential and inspire the kind of performances that we associate with our great club."
Sherwood became the 12th Barclays Premier League manager to lose his job since the start of the season and told Sky Sports News he was disappointed to be sacked.
"It is obviously a massive wrench to leave a club of the stature of Tottenham Hotspur, a club very close to my heart,'' he said.
As soon as it was announced that Sherwood was departing Tottenham, he was installed as favourite to fill the vacant hot-seat at Brighton.
Oscar Garcia left the south-coast club after losing 6-2 on aggregate to Derby in the Championship play-off semi-finals and now Sherwood could replace him.
West Brom and former club Norwich are also looking for new managers and Sherwood's impressive win ratio of over 59 per cent during his time at Spurs will no doubt alert those clubs.
When asked in his press conference ahead of their final game of the season against Aston Villa he revealed he was not confident he would be managing anywhere next year.
During his spell in charge Sherwood compared his position to that of a babysitter and a supply teacher and publicly criticised the commitment of his players after they slipped to an uninspiring 4-0 defeat at Chelsea.
Sherwood's side also lost 5-1 at home to eventual champions Manchester City and were knocked out of the Europa League in the round of 16 with a 5-3 aggregate defeat to Benfica.
An impressive display in their last league game of the season saw them beat Aston Villa 3-0 and seal a return to the Europa League next season but the writing already appeared to be on the wall for Sherwood.
Brazil midfielder Sandro, who fell out of favour under Sherwood, said last week that he expected to be working under a new boss while the approach to De Boer and constant link to the likes of Pochettino always suggested Levy was ready to make a change.