The former Edinburgh coach has paid the price for just one victory in this season's RBS Six Nations campaign. A win over Italy was the only triumph in a competition that ended with the Scots finishing in fifth place.
This means he failed to meet the SRU's minimum target of two Six Nations victories per season.
Hadden was given the Scotland job in September 2005. He initially took over on an interim basis but wins against the Barbarians and Romania secured him the job permanently.
Hadden enjoyed success in his first Six Nations. Victories over France, England - their first Calcutta Cup win for six years - and Italy saw Scotland finish in third place.
But Scotland then lost 21 of the next 32 Tests, and just one win in the last two RBS Sic Nations campaigns has cost him his job.
SRU chief executive Gordon McKie said: "It was agreed that a change in head coach is required to allow us to plan for the Rugby 2011 World Cup.
"On behalf of the board, I have thanked Frank for his hard work and commitment during his term as national coach."