Sizemore, a three-time American League all-star and two-time AL Gold Glove Award winner, has undergone two knee surgeries in two years and batted just .224 with 10 homers, 21 doubles and 32 RBIs in 71 games for Cleveland in 2011.
"We thought that we were best served at this point declining Grady's option," Indians General Manager Chris Antonetti told MLB.com. "We will still stay in touch with his representatives and Grady throughout the off-season and remain hopeful he will remain part of this organization."
Cleveland, however, did pick up its $7 million club option on right-handed starting pitcher Fausto Carmona.
The 27-year-old went 7-15 with a 5.25 ERA last season, but improved as the season went on.
The Indians also acquired veteran right-handed starting pitcher Derek Lowe from the Atlanta Braves Monday in exchange for Class A left-handed reliever Chris Jones.
The report said Cleveland will pay $10 million of the $15 million due in 2012 to Lowe, who went 9-17 with a 5.05 ERA last season.