Interim coach Mike Hankwitz made the announcement after practice on Tuesday.
Asked about Farmer, who sat out part of Saturday's 42-14 loss at California, Hankwitz replied, "As a matter of fact, I've suspended Clarence Farmer for the rest of the year. He will not return. That's all I will say about the matter."
Before the dismissal, Hankwitz told the Tucson Citizen that Farmer had been late for practices and "sealed his own fate."
As a sophomore in 2001, Farmer led the Pac-10 with 1,229 yards. He rushed for 309 yards and two touchdowns in four games last year before undergoing season-ending knee surgery and was second on the team in rushing as a senior with 326 yards and two touchdowns on 90 carries.
He ends his career as the sixth-leading rusher in school history with 2,530 yards, just 41 short of David Adams for fifth place.
Puzzle-maker slips 'Murdoch Is Evil' into Rupert Murdoch's Sunday Telegraph
Campus cop fatally shoots Texas student during traffic stop