"There wasn't a real fit anymore," Nationals manager Dusty Baker said. "Didn't know where to use him."
Papelbon is a free agent and can sign with any team. The Nationals are responsible for the remainder of his $11 million salary this year.
In 37 appearances this season, Papelbon is 2-4 with a 4.37 ERA and 19 saves in 22 opportunities. His most recent blown save came on July 26, when he entered the game with a 6-4 ninth-inning lead but failed to retire any of the five batters he faced, and Washington lost 7-6 to the Cleveland Indians.
Four days later, on July 30, the Nationals acquired All-Star Mark Melancon from the Pittsburgh Pirates. In the two weeks since the trade, Papelbon has made just two appearances, both in low-leverage situations. Meanwhile, Melancon has pitched in five games and allowed one hit over five scoreless innings while converting both of his save chances.
The release ends Papelbon's tumultuous tenure in D.C. A six-time All-Star closer, the right-hander was acquired July 28, 2015, in a controversial trade with the Philadelphia Phillies. Before the deal, Washington reliever Drew Storen had been one of the best closers in baseball, and the Nationals were in first place. After the trade, Storen and the entire Washington bullpen struggled, and the team finished seven games behind the Mets in the National League East.
One week before the end of the 2015 season, Papelbon attempted to choke teammate and eventual NL MVP Bryce Harper during an altercation in the dugout, when the two players got into an argument after Harper didn't run out a pop fly. For his actions, Papelbon was suspended seven games -- three by the league and four by the Nationals -- which effectively ended his season.
During the offseason, the Nationals tried to trade Papelbon but had trouble finding takers for the veteran hurler.
Baker called Papelbon a "professional" in response to the demotion. Teammates pushed back against any notion of the recent situation or last season's incident with Harper causing locker room issues.
"He's not a distraction whatsoever," ace Max Scherzer said. "He comes in to play every single day, he works his absolute tail off, and he competes on the mound for us.
"All that stuff, last year ... just a media circus. We were 100 percent behind him. We understood all his intentions. He was great for our team. He was great for everybody in this clubhouse. To sit here and say he's a bad teammate or anything like that, it's garbage to me."
Papelbon has posted career worsts in ERA, WHIP (1.46) and strikeout-to-walk ratio (2.21) this season.
"He was a great teammate. He was popular with his teammates," Baker said. "We wish Pap the best, and he wished us the best. He wanted us to win [the World Series]. Those were his parting words."
A 12-year veteran, Papelbon has a career record of 41-36 with a 2.44 ERA. His 368 career saves are the ninth most all-time and third among active hurlers. A former fourth-round pick of the Red Sox in 2003, he spent the first seven years of his big league career in Boston and helped the Red Sox win the 2007 World Series.
Asked if the Red Sox were interested in bringing Papelbon back, manager John Farrell said Saturday: "We haven't had any discussions on Jonathan."
But Red Sox president of baseball operations Dave Dombrowski said the team would be interested: "It just happened, but I would say it's worth looking into."
ESPN's Scott Lauber, ESPN Stats & Information and The Associated Press contributed to this report.