He is the second Premier League managerial casualty of a new season that is just three games old.
And as with the departure of West Ham boss Alan Curbishley, Keegan has decided to step down over a lack of control over transfers.
BBC Sport details the reaction to Keegan's departure and provides a chronology to the last eight months of his managerial reign.
FORMER NEWCASTLE MANAGER GLENN ROEDER
"I'm not surprised he's decided to resign. Having played with Kevin many years ago when we won promotion at Newcastle, I do know a little bit about him and it makes me think that owner Mike Ashley didn't know the animal he was employing eight months ago.
"If he did then he'd know that employing an executive director, I think that's what Dennis Wise's title is, wouldn't sit comfortably with Kevin, not unless Kevin had an input into who that person was and I'm sure Kevin didn't have an input into Dennis Wise being appointed."
LEAGUE MANAGERS' ASSOCIATION CHIEF EXECUTIVE RICHARD BEVAN
"The LMA has been supporting Kevin during a very difficult period.
"We share his great disappointment and frustration that the situation could not be resolved."
FORMER NEWCASTLE WINGER CHRIS WADDLE
"There's been a stalemate this time. Last time Kevin Keegan was in charge he ran the club his way. Then Dennis Wise came in, lots more people came in and you thought 'are they his choices?'
"Wise will be put in temporary charge now. They never seemed to have got on professionally. But if Keegan was unhappy about his appointment he should have done something back in January.
"There's a lot of anger on Tyneside right now. But the funny thing about football is that if Wise wins the next three games, what happens then?
"You hear about there being a boycott, but we heard that in the 1980s. They're fanatics, yes they love their club but they'll keep going to watch because they're Geordies and that's what they do.
"Whoever takes over, if he starts performing, if he wins games and gets them up there, they'll change their mind.
"But if they go on a bad run and lose game after game after game, I don't know what will happen, it'll be frightening.
"It'll also be interesting to see if the owner Ashley is in with the fans for the next game - I don't think he will be."
FORMER ENGLAND MANAGER GRAHAM TAYLOR
"The whole emphasis of being a chairman and the whole thing of looking after football clubs has turned radically because of the wealth of the owners.
"Kevin's a man of what he sees as principle. He's an honest man and wants it done his way.
"He'll not be happy because Newcastle was his first love, but I suspect this isn't the last we’ve heard of him. It wouldn't surprised me if he challenges Newcastle for constructive dismissal."
FORMER EXECUTIVE DIRECTOR OF THE FA DAVID DAVIES
"I think it's a really sad thing that football is without Kevin Keegan again, and I do ask about a game that can be without people like Kevin Keegan. Having said all that, he is something of an old-fashioned manager.
"He actually believes, having been brought up by the likes of Bill Shankly and played under Lawrie McMenemy, that managers should manage, and they should have the final say on who their players are."
NEWCASTLE UNITED OFFICIAL STATEMENT
"Over the last few days the club has devoted itself to the discussions it has held with Kevin and as a result of those discussions had put together a set of practical suggestions for how to move forward.
"The club made it clear to Kevin that if he had any outstanding concerns on its proposals he should raise them with the club.
"The club regrets that Kevin has, instead of taking up that offer, chosen to resign."
KEEGAN'S SECOND SPELL AT NEWCASTLE
16 January: Returns to Newcastle to replace sacked Sam Allardyce as manager 29 January: Dennis Wise joins club as executive director (football), along with businessman Tony Jimenez vice-president (player recruitment) and Jeff Vetere (technical co-ordinator) 22 March: Newcastle record first Premier League win of Keegan's second reign as goals from Mark Viduka and Michael Owen result in them beating Fulham 2-0 at St James' Park 9 May: Keegan meets with club owner Mike Ashley after admitting Newcastle are "a million miles" away from being as good as title challengers Chelsea 11 May: After watching his side lose 3-1 to Everton on the final day of the season, Keegan declares he is targeting fifth place in the Premier League for the 2008-2009 campaign 15 August: Signs Fabricio Coloccini for £10.3m from Deportivo La Coruna 16 August: Denies James Milner would be sold to balance the books following the arrival of Coloccini 29 August: Milner moves to Aston Villa for £12m 2 September: Keegan reportedly on the brink of leaving the club after a meeting with Ashley 4 September: Keegan announces that he has resigned as Newcastle manager
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