"We felt that a change was necessary," Ottawa general manager Bryan Murray told reporters.
"Coaches always get the finger pointed at them more than maybe they should, but in this case we felt that we had a competitive hockey team and for whatever reason, we didn't play to the level that we thought and expected. As a result, changes have to made."
Clouston posted a record of 95-83-20 in two and a half seasons with the Senators, but will finish this season in 13th in the Eastern Conference with a record of 32-40-10.
Also dismissed with Clouston are assistant coaches Brad Lauer and Greg Carvel.
(Reporting by Mike Mouat in Windsor, Ontario. Editing by Alastair Himmer)