The Brazilian Football Confederation said in a statement it had decided to fire Dunga and “dissolve the Brazilian national team’s coaching staff” following their latest debacle.
The news came after CBF officials met with Dunga earlier on Tuesday.
The exit from the Copa America centennial edition in the United States was the latest blow to demoralised, recession-hit Brazil, which is still reeling from the national team’s 7-1 World Cup semi-final thrashing by Germany on home soil in 2014.
After an opening 0-0 draw with Ecuador was followed by a 7-1 win over Haiti, Brazil needed a draw with Peru on Monday to reach the quarter-finals but instead crashed out of the tournament after controversially losing 1-0 to a disputed goal.
Speculation had swirled that Dunga was on his way out, but the coach said he was not afraid of the sack.
“I am only afraid of death,” Dunga told reporters.
Brazil are now left searching for a new coach just weeks away from hosting the Olympics in August, seeking to win football gold for the first time.
Dunga, 52, won the Copa America twice as a player and was captain of Brazil’s 1994 World Cup-winning squad.