The former Polish international midfielder was traded to the New England Revolution for a conditional pick in the 2004 MLS draft.
Nowak, 38, helped lead the Fire to the MLS Cup title in their inaugural 1998 season. He also captained the side to the 2000 MLS Cup final, the 1998 and 2000 U.S. Open Cup crowns and division titles in 2000 and 2001.
"This is the most difficult thing I've had to do in my professional life," Fire General Manager Peter Wilt said. "I feel strongly that Peter Nowak should have retired in a Fire uniform and we considered every option that would have allowed that to happen. Unfortunately, all of the alternatives would have crippled the team and, ultimately, we could not do that."
The first international player to join the Chicago franchise on Dec. 16, 1997, Nowak tallied 26 goals and 48 assists for 100 points in 114 games with the Fire. He was named the 1998 MLS Cup MVP and was selected to three MLS Best 11 teams in his first four seasons.
The trade marks the second in as many weeks by the Fire. In another move to help meet the MLS-mandated salary budget, Chicago also dealt midfielder-forward Dema Kovalenko to D.C. United on Dec. 26 for midfielder Justin Mapp.