Peppers will now play under a one-year contract worth at least $16.7 million, creating the prospect for another offseason of uncertainty next year.
The Panthers had until 4 p.m. ET to sign the four-time Pro Bowl pick to a deal that would secure his long-term future in Carolina and free up salary-cap space this season.
"Both sides tried," agent Carl Carey said. "Julius feels good about the one-year deal and is ready for the season to begin."
Carey and Panthers general manager Marty Hurney are now barred from negotiating a new deal until the end of the season, when Carolina will have the option to place the franchise tag on Peppers again.
That's what began the prolonged dispute between the team and its career sacks leader, who in January announced he wanted to play elsewhere.
Carolina still placed the restrictive franchise tag on Peppers, even after he said he would never sign a long-term deal with the team. Peppers then declined to sign the one-year tender and skipped a three-day minicamp and 12 other offseason workouts.
The franchise tag restriction meant other teams couldn't sign the 29-year-old Peppers without surrendering two first-round picks to Carolina. No other teams agreed to that deal and agent Carey couldn't broker a trade for less compensation.
Running out of options outside of a training-camp holdout, Peppers changed course on June 24 and signed the tender. Carey then said Peppers had positive talks with team officials and was now open to considering a long-term deal.
Carey said there was good dialogue on both sides, but Wednesday's deadline was a barrier. While Kansas City signed quarterback Matt Cassel and Baltimore locked up linebacker Terrell Suggs this week, the Panthers couldn't do the same with their franchised player.
It leaves Peppers with one of the richest one-year contracts in NFL history. The $16.7 million is guaranteed and Peppers would earn an additional $1.5 million for making the Pro Bowl and $250,000 for each Carolina playoff victory.
The large salary-cap figure Peppers takes up has hampered the Panthers from making offseason moves. They didn't sign one free agent from another team and had to cut ties with longtime veterans.
Reliable long-snapper Jason Kyle was allowed to sign with division rival New Orleans to save money. The Panthers will also likely rely on a number of rookies for several spots on special teams.
But Carolina will also apparently avoid a training-camp distraction involving its top defensive player. Peppers, who had a career-high 14½ sacks last season, has indicated he'll report to camp on time Aug. 2.
Hurney, who declined comment Wednesday, had remained confident throughout the stalemate that Peppers would be at camp.
After missing offseason workouts, he'll have to catch up to learn new defensive coordinator Ron Meeks' system. Meeks has said it will cater to Peppers' speed and athletic ability.