The former Leeds & Scotland captain was placed on temporary leave from his duties in December and finally announced he would not be returning yesterday.
McAllister said: "After much discussion with my family, I have reached the conclusion it would be better to sever all ties with Coventry City at this time so the club can clearly focus on the future.
"I would like to express my gratitude to the club, the players, the staff and the fans for their support and wish Coventry every success in the future."
He was replaced by caretaker Eric Black, who will continue to lead the team for now.