Donovan will return to the University of Florida, where he has coached the Gators to two straight NCAA championships.
A day after Donovan signed to coach the Magic, word began to leak out that he was having second thoughts. There were reports the Orlando franchise wanted Donovan to agree he would not coach another NBA team for the next five years.
"As our signing of Billy Donovan showed, we are committed to winning a championship," a statement released by the team said. "We have the legal right to hold Billy to the contract he signed, but with him having a change of heart about leaving college basketball, we want him at the University of Florida. We have granted him permission to break his commitment and return to the Gators."
Donovan has a 261-103 record in 11 seasons with Florida. He turned down the head coaching position at the University of Kentucky earlier this year.
The Orlando coaching job became vacant May 23 when the Magic dismissed Brian Hill.