Former Italy international Grosso, 46, oversaw just one win in seven matches since taking over as coach from Laurent Blanc on September 16, and leaves with Lyon three points adrift at the foot of the table.
The club said in a statement the decision to move on from Grosso was driven by the poor run of results and came following an "in-depth analysis of the first-team situation".
Sage, 44, previously coached Lyon's under-16s in 2019 before joining French third-division side Red Star.
Until last season he served as coach Habib Beye's assistant prior to returning to Lyon, where he oversaw the club's academy.
"I take things on a day-to-day basis. We'll do everything we can to keep things moving in the right direction. Everything is being done in a hurry, of course," Sage said during a press conference Thursday.
Saturday's match against Lens will make Sage Lyon's fourth coach of a turbulent 2023-24 season, including Jean-Francois Vulliez's interim stint between Blanc and Grosso.
Lyon have just seven points from 12 games and relegation is starting to seem a genuine prospect for the club that won seven consecutive titles between 2001 and 2008.
The side's troubles have gone beyond the pitch this term, and Grosso was injured last month when Lyon's team bus was stoned on its way to a game at Marseille, leaving him with cuts to the face that required stitches.
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