Kiel, one of the most highly recruited high school signal-callers in the nation last year, rejected Indiana and then Louisiana State in favor of Notre Dame where he sat out the Fighting Irish's run to the national championship game as a redshirt.
He will now transfer to another, as-yet-undetermined college, Kelly said.
The move comes after sophomore Everett Golson has seemingly locked up Notre Dame's starting quarterback job for the next three seasons.
"I don't know that I'm surprised," the coach told reporters. "We had kind of created an opportunity for him to compete in the spring. So maybe a little surprised from that standpoint, because he was actually told he'd be given the opportunity to compete."