Dye's attorney, Darren Heitner, described his client as "shocked, hurt and saddened" by the decision, the South Florida Sun Sentinel reported Monday.
Heitner said a member of the UM legal staff notified him of the decision Monday afternoon.
In a statement, the university confirmed the dismissal.
"Given the totality of the circumstances and unresolved issues regarding the NCAA investigation, the University has decided to move ahead," it said.
Dye had taken a physical Monday afternoon in hopes of being cleared to play after tearing his Achilles tendon in the spring.
He was suspended four games in 2011 for his involvement with Nevin Shapiro, a UM booster who allegedly provided cash, goods and even prostitutes to players between 2002 and 2010.
The school has been waiting for two months for a final decision from the NCAA, which conducted a broad investigation of the school following Shapiro's revelations.