The 35-year-old right-hander, an All-Star with the Los Angeles Dodgers in 2006 and '07, gave up four runs and eight hits in two innings Thursday against the Chicago White Sox, who hit three doubles and a home run. He allowed 13 hits over four innings in two spring training appearances and had a 15.75 ERA.
A baseball source told ESPN.com's Jerry Crasnick that the Royals released Penny after the pitcher injured his left, non-throwing hand punching a wall following Thursday's outing.
Penny later told The Associated Press that he hurt his hand but it happened when he slammed his glove down, not by punching a wall.
"I did hurt my left hand, but it was a freak accident," Penny said.
Penny missed last season to rest his right shoulder after going 0-1 with a 6.11 ERA for San Francisco in 2012. He has a 119-100 record with a 4.26 ERA in 13 major league seasons.
He agreed in January to a contract that would have paid him a $1 million salary in the major leagues.
Information from The Associated Press was included in this report.