The Blazers had hoped to trade Sabonis by Friday, when his contract was no longer guaranteed. Sabonis was set to make $7 million in the coming season, which would have given teams willing to trade for him some cap relief.
When trade talks didn't advance, the Blazers decided Thursday to terminate Sabonis' contract.
"We had a myriad of conversations with teams about his contract, but none were going anywhere," Blazers general manager John Nash said.
Sabonis, 38, told his agent earlier this week that he likely would not return to the NBA because he wanted to spend more time with his family.
A likable fan favorite from the start, Sabonis joined the Trail Blazers in 1995 and has averaged 12 points and 7.3 rebounds in 470 games. He is seventh on the team's career list with 3,436 rebounds.