General Manager Billy King announced the move on Friday, saying the second-year guard will benefit from playing for the Springfield Armor while he is on the team's inactive list.
The Nets put Williams on the inactive list Tuesday for "repeatedly violating team policy." The team's sixth man missed Tuesday's home game against Atlanta and Wednesday's game in Boston. King said he discussed the move with coach Avery Johnson.
"I feel the best course of action for Terrence and the team at this time is for him to play in the D-League," King said. "He is currently on the inactive list and this move will allow him to play until he is once again placed on the active list. There is no timetable on his return to the active list, and Terrence's future status will be addressed at the appropriate time."
Williams was selected 11th overall by New Jersey in the first round of the 2009 draft. The Louisville product has appeared in 86 career games, averaging 8.3 points, 4.4 rebounds and 2.9 assists. He was averaging 6.8 points, 3.8 rebounds and 3.0 assists this season.
When Williams was suspended earlier this week, Johnson declined to offer more details, but said the situation had been brewing for a while.
"It's something we've dealt with for the past two or three weeks. I don't know if he clearly understands what we're trying to do," Johnson said at the time.
Williams was benched for a game last season for missing a team bus.
Information from The Associated Press was used in this report.