The 25-year-old forward averaged 9.9 points and 5.4 rebounds over seven seasons with the Wizards, who drafted him out of high school in the second round in 2005.
The move enables the Wizards to remove the $23 million remaining on Blatche's contract from their salary cap after he failed to live up to expectations and dealt with a series of off-court incidents.
"Andray did not figure into our future plans, and using the amnesty provision is a mutually beneficial opportunity for us to part ways," Wizards team president Ernie Grunfeld said.
Blatche was shot during a carjacking attempt in September 2005, was arrested in 2007 for soliciting sex from an undercover police officer and suspended for a game in December 2010 for brawling with teammate JaVale McGee outside a Washington nightclub.
He also clashed with coaches. In January 2010, then-coach Flip Saunders suspended him for a game after he was belligerent with the coaching staff.
At last season's home opener, Blatche addressed the crowd by saying: "This is your captain, Andray Blatche," and after the game complained there weren't enough plays being run for him.
In 2011-12, he played in just 26 games, averaging 8.5 points. Wizards coach Randy Wittman banished him from the team in March to work on his conditioning. Earlier in the season, Blatche missed time with a calf injury.
Attempts to reach Blatche for comment were unsuccessful.
"We will be able to continue to develop our core group of young players, blend in the solid veterans we have acquired and maintain financial flexibility while Andray will be able to get a fresh start with another team," Grunfeld said. "We wish him the best moving forward."