Former Oldham midfielder Sheridan had returned to Boundary Park in January for what was a sixth spell in charge, the last having been during 2017.
Sheridan, though, could not prevent Oldham from being relegated and dropping out of the English Football League after a 115-year stay.
Oldham have won just two of their National League games this season, and suffered back-to-back defeats after going down 3-0 at Woking on Tuesday night.
A club statement read: "Oldham Athletic can confirm that, following discussions with manager and club legend John Sheridan, it has today been agreed that the time is right for him to step aside.
"Having had the chance to assess where the club is at and what changes are required, both the Board and John feel that someone else is needed to take on the major challenge of restoring the club's fortunes on the field.
"To allow him the send-off he deserves and to give fans the opportunity to show their appreciation, John has agreed to take charge for one last time at our home match with Eastleigh on Saturday.
"We would place on record our thanks to John for his efforts. He came out of retirement in January because he felt a sense of duty to try and keep the club in the EFL.
"The completion of the Rothwell family takeover means that the club's future has now been secured and with results so far not what everyone had been hoping for, John and the club now feel that the time is right for both he and Latics to move on as we enter a new era."