Also departing the club will be his coaching staff consisting of Graham Lancashire, Craig Rutherford and Mark Thornley.
Fell took up the reins at the Dolly Blues in October 2018 from Ramsbottom United.
Under his tenure, Lancaster City claimed the 2019/20 Lancashire FA Trophy, and have enjoyed relative stability in the Northern Premier League.
In a statement, Lancaster City chairman Andy Baker said: “Mark has had a great run as a manager of this club, providing stability in the league, securing a Lancashire FA Challenge Trophy win and overseeing a difficult period for the club during Covid.
“We thank Mark for his service and wish him our best for the future.
“We would also like to put on record our thanks to Graham, Craig and Mark Thornley for their work and professionalism during their time at the club and again, we wish them all our best and hopefully see them at the Giant Axe in the future.
“As a Board, we’re looking to professionalise every part of our club.
“Over the last 18 months, we've increased sponsorship income, gate numbers and bar spend, and that’s put us in a stronger financial position but not without significant financial challenges ahead.
“We want to bring investment into the club and take us from strength to strength. We look forward to bringing on a new management team to work with the board on our vision and ambition.”
The club will release a statement regarding their future management changes in due course.