The team announced the decision in a statement released on Tuesday.
Carolina had previously confirmed they would allow Newton, the first overall pick in the 2011 draft, to seek a trade. The Panthers signed Teddy Bridgewater to be their starting quarterback in free agency.
Announcing Newton's release, Panthers general manager Marty Hurney said: "Cam has meant a lot to this organization and the Carolinas.
"Everyone saw his performances on the field. I had the privilege of seeing how hard he worked off the field, and his commitment to this team when no one was watching.
"He's the ultimate competitor and it physically hurts him to lose. He willed this team to victory on many occasions and will always be considered one of the greatest players in the history of this franchise.
"His contributions to this team, this community and the game of football will leave a lasting impact on our organization."
Newton won the MVP in the 2015 season, which saw him lead the Panthers to Super Bowl 50, where they lost to the Denver Broncos.
The Panthers made the playoffs in four of Newton's nine seasons with the team.
However, in recent years, Newton has been hindered by injuries.
Newton battled a shoulder injury in 2018, with a once-promising campaign derailed as the Panthers lost seven of their last eight games to finish 7-9.
He played only two games in 2019, losing both, with Lisfranc fracture forcing him to watch the rest of a 5-11 season from the sideline.
The Panthers fired head coach Ron Rivera in December, with Carolina now starting a rebuild under Matt Rhule.
Newton will not be part of that rebuild and leaves the Panthers having thrown for 29,041 yards, 182 touchdowns, and 108 interceptions.