Matthew Whitaker will take over as acting attorney general, the President said.
Whitaker is expected to take charge of the Russia investigation and special counsel Robert Mueller from Deputy Attorney General Rod Rosenstein. Whitaker has been openly critical of Mueller and the investigation and Democrats immediately called on him to recuse himself, just as Sessions had.
The move is an abrupt end to what had been a tumultuous tenure for Sessions, originally one of Trump's earliest and most loyal surrogates as an Alabama Republican senator. He was a key figure in implementing Trump's vision for America and significantly rolled back Obama-era policies on immigration, police reform and civil rights.
Sessions was an enforcer of much of the Trump administration's hardline approach on immigration and regularly praised the President's tough words on crime. But even as he continued to carry out the Trump agenda, his relationship with the President remained strained and fraught for months due to the ongoing Mueller investigation.
Sessions received the request to resign from Kelly, not the President, on Wednesday morning, an administration official said. It is not clear whether Mueller was told ahead of time.
Justice Department employees were not officially notified of Sessions' ouster nor of Whitaker's appointment before the President's tweet and media reports announced the news, sources within the department say.
Sessions' ouster came a day after the midterm elections saw Republicans hold onto control of the Senate -- which would confirm Trump's eventual permanent choice to head the Justice Department -- and just weeks after Trump's former personal attorney Michael Cohen pleaded guilty to multiple counts of campaign finance violations, tax fraud and bank fraud and Trump's former campaign chair Paul Manafort was found guilty of eight charges including tax fraud and bank fraud.
Sessions was aware that Cohen was facing bank fraud and tax violations but had been walled off from the campaign finance aspects of the investigation into Trump's former lawyer, a source with direct knowledge of the matter told CNN.
Trump's distaste for Sessions was well known -- and publicly reinforced by the President himself on a regular basis -- after the attorney general recused himself from all matters related to the 2016 campaign early in Trump's term.
But Sessions hung on, and although there was no formal reconciliation, the President allowed him to stay, even despite the unwillingness of White House spokespeople to publicly confirm, for days, that Trump had confidence in the attorney general.
Sessions, for his part, consistently maintained that his recusal decision was made in consultation with career ethics officials at the Justice Department and was in the works from the time he was sworn in.
Top Democrats immediately called for Mueller's investigation to be allowed to proceed.
"Given his previous comments advocating defunding and imposing limitations on the Mueller investigation, Mr. Whitaker should recuse himself from its oversight for the duration of his time as acting attorney general," Schumer said.
Former Obama administration Attorney General Eric Holder declared interference with the special counsel "a red line."
"Anyone who attempts to interfere with or obstruct the Mueller inquiry must be held accountable. This is a red line. We are a nation of laws and norms not subject to the self interested actions of one man," Holder tweeted.
New York Democratic Rep. Jerry Nadler tweeted a vow for accountability. Nadler is poised to chair the House Judiciary Committee next year.
"Americans must have answers immediately as to the reasoning behind @realDonaldTrump removing Jeff Sessions from @TheJusticeDept. Why is the President making this change and who has authority over Special Counsel Mueller's investigation? We will be holding people accountable," Nadler tweeted.
Under Sessions, the Justice Department has been aggressive in trying to cut off funds to and punish sanctuary cities -- though the courts have repeatedly admonished many of those efforts -- and was the primary agency that justified the ending of the Deferred Action for Childhood Arrivals policy, a program that protected young undocumented immigrants who came to the US as children.
CNN's Veronica Stracqualursi and Tal Kopan contributed to this report.