The former Leicester and Derby boss replaced Quique Sanchez Flores in December with Watford nine points adrift at the bottom of the Premier League.
The 56-year-old immediately oversaw a run of four wins in his first seven matches - including Liverpool's first defeat of the season.
That result leaves Watford now needing a win against either Manchester City or Arsenal to be certain of avoiding relegation.
Pearson's assistant Craig Shakespeare has also been dismissed, with U23s coach Haydn Mullins and goalkeeper coach Graham Stack placed in temporary charge of first team affairs.
Pearson is the third managerial sacking by Watford this season, following Javi Gracia and Quique Sanchez-Flores in being shown the door.
"We discussed this right back when the lockdown started because it was important to clarify that there was a commitment to do the job," he told Sky Sports
"Both Craig [Shakespeare] and myself, when we joined, our intention was to do what we can this year to retain our status and then go from there. I've really enjoyed working here and yeah I would love to stay if the circumstances are right and all parties are in agreement."
Whatever way you look at it, Nigel Pearson's achievement in getting Watford to the brink of Premier League safety when he took over a team with seven points from 15 games, and eight adrift of safety, is seriously impressive. บาคาร่า
But Watford owner Gino Pozzo has shown plenty of times that numbers only mean so much for him. He sacked Quique Sanchez Flores at the end of the Hornets' first season back in the top flight in 2016 despite finishing 13th, because of a perceived dull style of football and a slump in the second half of the season.