After Celtics general manager Danny Ainge acknowledged earlier Thursday that the two sides were close to a deal, a source told ESPN.com that it unraveled when McGee wanted a player option for next season while the Celtics wanted a team option.
He has averaged 4.6 points and 2.7 rebounds this season in 23 games -- 17 with the Nuggets and six with Philadelphia.
The Celtics (24-35) are 11th in the Eastern Conference standings but only two games behind the Charlotte Hornets for the eighth playoff spot.
"JaVale is a long, athletic guy, and we don't have that type of player -- an above-the-rim offensive and defensive player," Ainge said earlier Thursday during his weekly appearance on Boston sports radio 98.5 The Sports Hub. "He's been paid a lot of money in our league, had some injuries, hasn't lived up to his potential yet, and we're hoping that he can under [Celtics coach Brad Stevens'] tutelage.
"I think he's in a good place, emotionally and mentally, and he really wants to get his career on the right path."
However, that path apparently will be with another team.
The Miami Heat, Dallas Mavericks and Golden State Warriors have been mentioned as possible landing spots for McGee, who would be eligible to play in the postseason because he was waived before the playoff-eligibility deadline.
Philadelphia ultimately agreed to release McGee without forcing him to surrender any salary. He had roughly $3 million left from his $11.25 million salary this season when the Sixers acquired him and is owed $12 million next season.