Iverson joined the club in September, later expressed displeasure with not being a starter and then took a leave of absence Nov. 7.
"The Grizzlies and Allen Iverson have come to a mutual agreement that because of personal matters that forced him to leave the team ... Allen will step away from the game at this time, allowing him to focus on those matters," Wallace said. "As a result, we will be ending our contractual agreement with Allen, which will allow both parties to move forward. We wish Allen the best."
The 34-year-old Iverson has a 27.1 scoring average in the NBA. He averaged 12.3 points and 3.7 assists in the three games he played with the Grizzlies.
Iverson, who starred at Georgetown in college, played 10 years for the Philadelphia 76ers, winning the NBA's Most Valuable Player award for the 2000-01 season. He went to the Denver Nuggets in 2006 and was with both Denver and the Detroit Pistons last season.
The Grizzlies signed veteran point guard Jamaal Tinsley to a one-year contract during the weekend.