Woodson compiled a 206-286 record during his six years with the Hawks, including 11-18 in the postseason.
"It was a difficult decision because Mike's has been here six years," general manager Rick Sund said in a video released on the Hawks' website (www.nba.com/hawks).
"Sometimes in this business, particularly in the business of sports, change makes some sense.
"Sometimes the players need to hear a new voice and sometimes a coach needs to have his voice heard to a different group of players.
"So after careful thinking and consideration, I met with Woody and we decided that we were not going to give him a new contract."
Woodson's contract expired on Monday so the Hawks needed to make a quick decision.
The Hawks were swept in four games by Orlando in the second round of this year's playoffs after beating Milwaukee in seven games in the opening round.
Atlanta had a 53-29 record during the regular season and finished in second place in the Southeast Division.
(Writing by Gene Cherry in Raleigh; Editing by Steve Ginsburg)