The former University of Illinois product, who becomes an unrestricted free agent who can sign with any other club, caught only 25 passes for 378 yards with no touchdowns.
The Redskins obtained Lloyd from San Francisco in March 2006 for third round and fourth-round draft picks.
Last season, Lloyd, whose disruptive behavior has been his downfall in a five-year NFL career, appeared in just two games before suffering a broken left collarbone in a Nov. 14 practice. He was placed on the injured reserve list.
He had been designated a June 1 cut for salary cap purposes and will count $5.5 million in salary-cap space in 2009, The Washington Post said.
Lloyd earned about $11 million with Washington, including a $1.8 million bonus.
Other reports this off-season have said that Washington is trying to trade for Cincinnati Bengals Pro Bowl receiver Chad Johnson.