As part of a coaching restructure revealed by Cricket Australia, captain Michael Clarke has stepped down as a selector of the team.
"The simple thing is, the performances of the Australia team have not been at the standards we expect or desire," CA chief executive James Sutherland said at a news conference in Bristol.
Arthur was hired as the first foreign-born coach of Australia in November 2011 but the South African's tenure has been plagued by poor results and player indiscipline in recent months.
"The disappointing thing is that we were nearly there to cracking it," said Arthur, who added that he didn't "feel let down by the players at all."
"But I do take responsibility," he said.
The Australians lost a test series 4-0 in India this year and failed to win a match at the Champions Trophy one-day tournament which has just concluded in England.
Off the pitch, Arthur polarised public opinion when he dropped four players, including vice-captain Shane Watson, from his team for the third test for failing to complete written reports on their views of the team's performance. The saga was dubbed "Homeworkgate."
Arthur might also have been held partly responsible for an off-field incident involving opening batsman David Warner during the Champions Trophy. Warner was reportedly drunk when he aimed a punch at England batsman Joe Root at a nightclub in Birmingham, after Australia's 43-run loss to England in a group match.
Warner has been suspended until the first Ashes test, but Sutherland expressed regret at the ineffectual manner in which the incident was first dealt with by team management.
"Discipline, consistency of behavior and accountability for performance are all key ingredients that need to improve," Sutherland said in a Cricket Australia statement. "And we see that the head coach is ultimately responsible for that."
"The timing is far from ideal," Sutherland added, "but we didn't feel we could sit back and hope matters would change without addressing issues critical to a high-performing team culture. It obviously isn't the type of change we want to make three weeks out from the Ashes commencing but we believe a change is needed."
Confident of decision
Lehmann, who is in England and has coached Australia A, led Queensland state to victories in Australia's first class and one-day competitions and the Brisbane Heat to win the Big Bash Twenty20 league.
The 43-year-old Lehmann, who played 27 tests and 117 one-day internationals for Australia, has also coached Kings XI Punjab and the now defunct Deccan Chargers in the Indian Premier League.
"We're really confident that we are making the right decision right now, that this team will respond under Darren Lehmann and we will see an effort during this Ashes series and going forward that Australian cricket fans can be very proud of," Sutherland said. "We're confident that the decisions that we've made, tough as they might be, will see improved performance in the short and long term."
The first of five Ashes tests starts at Trent Bridge, Nottingham, on July 10. The team will meet in a five-test series in Australia later this year.
"They are a really good, young group of players who, yes, do need to learn the ropes and learn the ropes quickly," Arthur said. "And they are learning the hard way at the moment." – Sapa-AP