The 53-year-old led Ireland to their first Grand Slam in 61 years in 2009 but presided over a poor Championship this time around as his side won just once to finish fifth in the table.
His dismissal has been described as 'inevitable' by Ireland and Lions legend Keith Wood, with Kidney having led Ireland to just 16 wins in 40 Tests since their Grand Slam glory as they slipped to an all-time low of ninth in the IRB World Rankings.
"We would like to sincerely thank Declan for his commitment to Irish rugby," said Irish Rugby Football Union chief executive Philip Browne.
"With a host of new and emerging talent at every level, and despite the clear challenges ahead, we are confident of securing another world-class coach to work with this talented and ambitious group of Ireland players."
Defence coach Les Kiss has been named interim head coach and will lead the summer tour of North America. Kiss will be aided by Kidney's other assistant coaches Gert Smal and Anthony Foley when Ireland face the USA in Houston on June 8 and Canada in Toronto on June 15.
But it is current Reds boss McKenzie who is leading the list of possible permanent replacements after announcing that he will leaving the Queensland-based franchise at the end of the Super Rugby season.
The Australian insisted that he hadn't had any contact with the IRFU when he announced his decision in mid-March but he did state that he was 'excited about pursuing a different role either here (in Australia) or overseas".
McKenzie had been tipped to take over from Robbie Deans at the Wallabies but that move remains very much in doubt and any proposal from Dublin may be particularly appealing.
"If there's a coaching assignment that looks like a real challenge for me then I'll have a look at it - it's as simple as that," added the 47-year-old former Wallaby prop.
There are a number of other names thought to be in the running, however, with ex-Wales boss Mike Ruddock among them.
Ruddock, who led Wales to a Grand Slam in 2005, is currently coaching Ireland U20s and has previously coached Leinster.
Current Leinster supremo Joe Schmidt would be a popular choice with many after guiding his province to back-to-back Heineken Cup crowns, while English-based Irishmen Conor O'Shea and Mark McCall are also being highlighted despite the former having already stated that he has no desire to leave Harlequins and the latter having signed a new two-year contract with Saracens in January.