Reed, who has spent his entire career with the Baltimore Ravens, visited the Texans last week but left Friday without a deal.
Ravens coach John Harbaugh indicated in a text message to NFL.com that Reed's decorated stint in Baltimore is over, saying, "Ed is a great friend and player. I will always appreciate our time together ..."
According to reports, the Texans offered Reed a three-year deal in the salary range of $4 million annually, although Reed has been seeking a salary similar to the $7.2 million he earned last season.
The Ravens, who have had significant turnover since winning the franchise's second Super Bowl, appeared interested in retaining the nine-time Pro Bowler.
"On the hopeful scale, I'd say it's of high hope," Harbaugh said at the NFL owners meetings Tuesday. "It's high on the measuring stick. We'll just have to see how it works out."
But the Texans apparently won out, reviving an otherwise disappointing free-agency period. Houston has lost safety Glover Quin to Detroit and tight end James Casey and linebacker Connor Barwin to Philadelphia since free agency began.
Baltimore has traded receiver Anquan Boldin to San Francisco for a sixth-round pick, and linebacker Ray Lewis retired and joined ESPN. When free agency began, linebacker Paul Kruger signed with Cleveland and linebacker Dannell Ellerbe left for Miami. Baltimore also released safety Bernard Pollard, a former Texan, and Philadelphia signed cornerback Cary Williams.
Ravens wide receiver Torrey Smith took to Twitter in reaction to Reed's departure, stating that Baltimore would be different without Reed and Lewis.
"No Reed or Ray in Baltimore????? This season is gonna be weird," Smith tweeted.
Reed, 34, has played all 11 of his NFL seasons in Baltimore, where he's the franchise leader in interceptions with 61. His 1,541 return yards with those pickoffs is an NFL career record. He was the NFL defensive player of the year in 2004 and an eight-time All-Pro.
Reed has 14 career touchdowns, and is the only player in NFL history to score on a punt return, a blocked punt, an interception and a fumble recovery. He played in all 16 games during the 2012 regular season, finishing with 58 tackles and a team-high four interceptions.
With Reed possibly on the move, Baltimore scheduled a visit with Raiders free-agent safety Michael Huff, a league source told Schefter.
ESPN.com's Jamison Hensley and The Associated Press contributed to this report.