Former Scotland captain Hendry, who ironically had been lined up to replace Brian Laws at Glanford Park before a boardroom coup saw Laws reinstated, had been in charge of the Seasiders since June 2004.
A severement package has finally been agreed, which sees Hendry and coach Ian Miller leave the Lancashire club.
Seasiders chairman Karl Oyston said: "I would like to thank Colin for all his hard work.
"I am sure he has taken many positives from his time at the club and I am sure he won't be out of the game too long."
Hendry said: "It has been a great learning curve, and I would like to thank Blackpool FC for the opportunity it has given me.
"It certainly has whetted my appetite for management and I would like to wish the players and supporters every success in the future."