The 34-year-old former Swindon, Barnsley and Plymouth forward joined the National League South club in the summer to assist boss Lee Hodges.
But with the White Tigers 16th in the table, Fallon has left and the club say they "wish him well in the future".
Defender Durrell Berry, who was injured against Forest Green in the FA Trophy on 10 December, has also departed.
Meanwhile, manager Lee Hodges says he cannot believe how his side were beaten 5-1 at East Thurrock.
City, who narrowly lost to National League high-fliers Forest Green in the FA Trophy last week, went a goal up through Andrew Neal before letting in five, including three in three minutes.
"I'm in shock," Hodges told BBC Radio Cornwall. "We dominated the game for 35 minutes and we could have put them out of sight and been two, three or four up."
Neal's 27th minute opener was cancelled out by Tom Wraight eight minutes later and he gave the home side the lead a minute before half-time.
Kane Ferdinand put the home side further ahead on 63 minutes before Wraight completed his hat-trick and Ben Marlow added the fifth.
"We came out in the second half and for 10 minutes we again dominated the game," added Hodges.
"It's so frustrating that the lads out there that reached those dizzy heights of those past few games have just let it all slip away in a mad three minutes."
Truro City have cancelled the player-coach deal of New Zealand international Rory Fallon by mutual consent.