Chris Ash is leaving after just 18 months with the group. He will be replaced by Simon Burke, head of Virgin Entertainment and a former main board director of WH Smith.
A spokesman for Hamleys said: "There were serious concerns at group level about the performance of the business last year."
Hamleys has suffered a series of problems in the past two years, during which its share price has fallen from a high of 469p in 1996 to just 183p, up 2p yesterday.
The integration of the Toy Stack high street business was handled poorly while the House Of Toys concessions in stores such as Debenhams also suffered. Meanwhile, the flagship store on London's Regent Street was hit by a fall in tourist spending caused by the strong pound and the Asian crisis.
In March the company announced a fall in full year pre-tax profits, down to pounds 6.4m to pounds 7.6m in the 12 months to January.
Mr Ash was employed on a 12-month rolling contract and was paid pounds 214,000 last year, excluding bonuses. He is expected to receive a similar sum in compensation.
Mr Burke, 40, will join Hamleys as soon as he is released from his contract with Virgin Entertainment.
Howard Dyer, chairman of Hamleys, said: "I am delighted to welcome Simon Burke to the board. He is a seasoned executive with a proven track record."
Mr Burke said: "Hamleys is a premium brand and I am confident, having come from a background where brand exploitation is key, that I will be able to unearth opportunities to develop the business further."