At 33, Holliday was the Dolphins' second-oldest player. He started 15 games for the AFC East champions in 2008 and led the team's defensive linemen with 46 tackles. He was third on the team with 3.5 sacks.
"These types of decisions are always difficult ones, especially with someone like Vonnie, who has been a role model both on the field and off it," Dolphins general manager Jeff Ireland said in a statement released by the team. "He was one of our captains last year and was a proven leader, not just in his tenure with the Dolphins but throughout his 11-year career. We are grateful for all his contributions to the Miami Dolphins organization, and we want to wish him and his family the best of luck in the future."
Holliday was scheduled to make $2.8 million in base salary in 2009 and was due a $1.5 million roster bonus Tuesday.
Holliday started at end in the Dolphins' 3-4 scheme last season. Miami also has lost free safety Renaldo Hill and cornerback Andre Goodman, both of whom signed with the Denver Broncos as unrestricted free agents.
Holliday joined the Dolphins in 2005 after being released by the Kansas City Chiefs. He spent two seasons with the Chiefs following five years with the Green Bay Packers, who took him in the first round of the 1998 draft.
Holliday has started 141 of the 151 NFL games in which he has played.
The Associated Press contributed to this report.