The dissociation reaction of mercury diiodide (HgI₂) in the gas phase was investigated using femtosecond pump and probe spectroscopy with polarized light pulses. HgI₂ has been excited at 266 nm and the subsequent dissociation reaction was probed with 400nm laser pulses. The laser induced probe fluorescence was dispersed and detected with resolved polarization. The time and frequency resolved fluorescence was an observable for the product formation as well as the decay of the parent molecule. The analysis of our results is consistent with findings that photodissociation at 266 nm leads mostly to excited iodine atoms (I(²P_1/2)) and vibrationally excited HgI whose product state distribution can be investigated from the dispersed laser induced fluorescence. In addition, a distinct coherence between the parent molecule and the HgI product as well as a significant spatial anisotropy of the HgI fragment has been observed, as can be expected for a fast excited state dissociation reaction. In addition to the single photon excitation of HgI₂ we also detected multiple photon excitation and dissociation yielding strongly polarized atomic fluorescence from excited Hg atoms. From the polarization and wavelength dependence of the corresponding signals the processes as well as their dissociation mechanisms could be assigned and distinguished. Finally, the results of the one photon dissociation at 266 nm are compared with simple two dimensional wavepacket calculations performed on a model potential surface which has been recently developed by the Zewail group.