Real Madrid has sacked Benitez with the club third in the league, behind both city rivals Atletico Madrid and national rivals Barcelona. Legendary French midfielder Zinedine Zidane is taking up the post.
Real Madrid club chairman Florentino Perez hosted Monday's press conference in the capital, at which questions were not permitted.
"We have taken a difficult decision to terminate Rafael Benitez's contract with the first team," Perez told reporters, describing Benitez as a "magnificent professional and a great person," also thanking the veteran for his work.
Real drew 2-2 with Valencia in their most recent league fixture, but had notched several big wins prior to that.
French star midfielder Zinedine Zidane, the world's most expensive player when he signed for Real and a former Madrid captain, will succeed Benitez as manager.
"The board has decided to name Zidane coach of the first team," club president Perez continued. "He is one of the greatest figures of football's history. He knows what it's like to lead the Real Madrid team, and how hard it is to be on this bench. He knows what it's like for all of these players."
Zidane has spent recent months being groomed for the role, coaching Madrid's third-division "B" team.
"I would like to thank the club that has given me this opportunity. We have the best club in the world, the best fans across the globe," Zidane said at the evening press conference in Madrid, saying he was more excited than when he signed up as a player at the Bernabeu. "I will do my very best with all the players and I believe that everything is going to turn out well."
Less than two months ago, with rumors already flying, Perez had told assembled journalists that Real would continue to back its veteran manager, formerly of clubs including Valencia, Liverpool, Chelsea, Inter Milan and Napoli.
In Perez's two stints as club chairman (2000-2006, 2009-present), Real Madrid have now gone through a total of 11 different managers.
Despite dominating most opponents in Spain's top flight, Real trail Barcelona and Atletico Madrid in the table. The capital city club was dismantled 4-0 at home by Barcelona in November, prompting the first round of speculation on Benitez's job; the derby with Atletico on October 4 ended in a 1-1 draw.
What's more, Real were thrown out of Spain's domestic cup, the Copa del Rey, for fielding an ineligible, cup-tied player in a match they won. Real's attempted appeal failed, striking at least one trophy from the cabinet for the season.