After initial reports of the impending move surfaced, Smith tweeted: "Don't be surprised when I'm back on track next year......."
The 49ers signed Smith to a five-year, $40 million contract in 2015, but his production with the 49ers did not match what he accomplished with the Baltimore Ravens.
Smith, 28, made 20 receptions for 267 yards and three touchdowns in 12 games in 2016. He had 33 catches for 663 yards and four scores in 16 games in 2015 for the 49ers.
In his final year with the Ravens in 2014, Smith had 92 receptions for 767 yards and a career-high 11 touchdowns.
Smith was scheduled to count $9,475,000 against the salary cap in 2017. The 49ers will save about half of that amount because the rest of his $8 million signing bonus will count toward this year's cap.
Cutting Smith is another move by new coach Kyle Shanahan as he reshapes the team's offense.
The 49ers re-signed receiver Jeremy Kerley over the weekend, while two other wide receivers, Quinton Patton and Rod Streater, are scheduled to become unrestricted free agents later this week.