Oates had one year remaining on a three-year contract, while McPhee's contract will not be renewed
"George has been a terrific, longtime executive for our franchise, and I'm grateful for his commitment to the Capitals organization for the past 17 years," majority owner Ted Leonsis said in a statement.
During McPhee's tenure, the Capitals won seven division titles, two regular-season Eastern Conference crowns, earned one Presidents' Trophy and competed in the Stanley Cup playoffs 10 times. But they have not made it past the second round since 1998.
"We are also appreciative of Adam's efforts and thank him for his devotion, work ethic and contributions to the Capitals the past two seasons," Leonsis said. "He is a smart, tactical coach who improved the performance of several of our players."
Oates, 51, is a Hall of Famer who played 19 seasons in the NHL. His overall record as the Washington coach was 65-48-17.
He guided the Capitals to the playoffs in his first season, but they were eliminated in the first round.
This season, Washington compiled a 38-30-14 regular season record to finish ninth, missing the playoffs by one spot.
As the season wound down, Oates and McPhee came under increasing criticism from fans who believed the team was underperforming.