The reinstatement deal would have allowed Williams to serve a four-game suspension during Miami's final four games of this season and resume play in 2005. Williams declined the offer, his lawyer, David Cornwell, said Thursday.
The league said the suspension was for violating its substance-abuse policy.
The 27-year-old Williams retired unexpectedly prior to this season. An arbitrator later ruled he owed the team $8.6 million for breach of contract. Williams is contesting the ruling.
Williams, who won the Heisman Trophy as the nation's top college player in 1998, ran for 3,225 yards and 25 touchdowns in two seasons with the Dolphins.