The Tykes have only won five games this season and Saturday's defeat was their seventh at Oakwell.
Hill's assistant David Flitcroft has been asked to take charge for the New Year's Day game at Peterborough United.
Flitcroft, who was also Hill's number two at Rochdale, has promised the board a response on Sunday.
The decision to relieve Hill of his job was announced in a brief statement on the club's website.
"We've had a pretty rough time results-wise over the last few months and the board decided we have to do something positive in order to try and retain our status in the Championship," general manager Don Rowing told BBC Radio Sheffield.
Overall, former Blackburn, Plymouth, Rochdale, Cheltenham and Morecambe defender Hill was in charge of Barnsley for 75 matches, winning only 19, with 41 ending in defeat.
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