The 38-year-old Manning, who led the Giants to memorable Super Bowl wins over the New England Patriots in 2008 and 2012, will be replaced by rookie Daniel Jones, coach Pat Shurmur said in a statement.
"Eli and I spoke this morning," Shurmur said. "I told him that we are making a change and going with Daniel as the starter. I also talked to Daniel.
"Eli was obviously disappointed, as you would expect, but he said he would be what he has always been, a good teammate, and continue to prepare to help this team win games."
Jones, who was chosen by the Giants with the sixth overall pick in this year's draft, will make his first regular season start against the Tampa Bay Buccaneers on Sunday.
Jones' elevation follows an assured performance in pre-season, which saw him throw two touchdown passes with an 85.3 completion rate.
Manning's demotion meanwhile could signal the end for the veteran quarterback, who was twice named Super Bowl MVP for his role in upset victories over the Patriots.
The younger brother of NFL legend Peyton Manning, the Giants quarterback has started 232 games since coming into the team during the 2004 season.
Manning started both of this season's games, both losses -- away to Dallas and then at home against Buffalo.
The Giants have scored only four touchdowns over those games despite averaging 420 yards of offense.
Against the Bills on Sunday, Manning threw his first two interceptions of the season and failed to complete a single pass during the first quarter.
"Ultimately, this is a move that I felt was best for this team at this time," Shurmur said.
"I have said it since I got here, I am very fond of Eli. His work ethic, his preparation, his football intelligence. All those attributes are as good as I have ever seen in a player.
"And Eli worked as hard as you could ask of anybody to get ready for this season. This move is more about Daniel moving forward than about Eli."