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The former Leeds and Leicester midfielder was under contract until 2028, but departs following a UEFA Under-21 Championship qualification campaign which saw Wales lose six of their eight matches and concede 28 goals.
“My greatest honour to have done this role, my biggest heartbreak to lose it,” Jones, 46, said in a statement posted on social media.
Jones won 13 caps for Wales during his playing career and was U18s head coach before being appointed U21s boss in September 2022.
The Football Association of Wales said: “The FAW would like to put on record its gratitude to Matty Jones for his commitment to the Cymru national teams and wish him the very best for the future.”