Jones made over 100 appearances as a player for City before initially becoming the club's manager in 2016.
In just under three years at Marsh Lane, Jones won plaudits for the club's performance in the National League South and FA Cup but he leaves the club second bottom in the league.
"Following discussions today we must announce that by mutual consent Oxford City Football Club and First Team Manager Mark Jones have parted company," a statement on the club's official website reads.
"It goes without saying this was a very difficult decision for the club with Mark's history as a player coach and manager at the club.
"We would like to thank Mark for his efforts and achievements during his time as manager. We wish him well with his future aspirations."
The club have also announced Director of Football Justin Merritt and Assistant Manager Andy Ballard will take interim charge of the first team while a search for a new manager gets underway.