The 49-year-old has come to an amicable agreement with United chiefs to part ways immediately.
Mellon was in charge for less than a year after he was hired last summer as a late replacement for Robbie Neilson.
Despite having just three weeks to get to grips with his new squad as United made their top-flight return after four years in the Championship, Mellon was able to successfully stabilise the club in the Premiership, guiding the Terrors to a ninth-place finish and a Scottish Cup semi-final slot.
However, the Paisley-born boss has decided to call time on his return to Scotland.
"I am immensely proud to have been manager of Dundee United and my role in improving the club's standing within Scottish football," said Mellon in a statement.
"In what has been an unprecedented season due to the pandemic and in the absence of the opportunity to have a close relationship with the fantastic fan base, I leave content that I have played a substantial part in taking this club forward.
"I would like to thank the players and staff at Dundee United for their hard work and endeavour on my behalf, the board for their support during my time here and all the supporters who I had the opportunity to meet."
The former Fleetwood and Shrewsbury manager was headhunted from Tranmere following Neilson's departure to Hearts.
But there has been constant speculation over the past couple of months that he could return south having been linked with the vacancy at Doncaster.
Richie Wellens is now in charge at the Keepmoat Stadium but Mellon will not be short on offers given his track record in England's lower leagues, where he has overseen five successful promotion-winning campaigns.
He still had a year to run on his Tangerines deal but United chiefs decided not to stand in his way after thrashing out the terms of his departure.
United chairman Mark Ogren said: "Micky came into the club during a challenging period for football in general due to Covid-19 and led the team to consolidate our position in the Premiership with a ninth-place position. He also brought a return to Hampden with a Scottish Cup semi-final.
"After a constructive and open discussion reviewing the season and with his initial targets reached, both parties agreed that now was the correct time to part ways.
"Micky leaves with our best wishes and gratitude for his achievement this season and we wish him every success in his future career.
"Dundee United will now look to appoint a new head coach as we look to build on the strong foundations put in place over the last few seasons in accordance with our long-term performance strategy."
United youth supremo Tam Courts and John Hughes – who quit as Ross County boss on Monday – are the leading contenders to take over from Mellon according to the bookmakers.