David Sheepshanks, the Ipswich chairman, said: "Joe and I agreed that this is the right moment to go our separate ways. The parting is entirely amicable."
Royle was last night linked with a move to another Championship club, Derby County, where Terry Westley is caretaker manager after Phil Brown left the club in January.
Sheepshanks said Royle had managed Ipswich "through turbulent times and built a side that reached the play-offs in two out of the last three seasons".
Royle, who took over in October 2002, added: "I would like to thank everyone involved at Ipswich. As the chairman said, we part extremely amicably and I wish the club, its staff and the supporters nothing but the very best for the future."
* The Sheffield United manager, Neil Warnock, is close to agreeing a new contract with the club. The contract on offer is expected to extend his tenure to 2008. The club's chairman, Kevin McCabe, said: "Everything has been agreed in principle. As far as I am concerned it will be completed shortly." The Blades signed the 34-year-old defender Chris Lucketti from Preston North End for £300,000 yesterday.Reuse content