Woodley, the highest-paid defensive player in Steelers history, will be designated as a post-June 1 salary-cap casualty and will be available to sign with another team starting at 4 p.m. ET Tuesday, according to the source.
A seven-year veteran, Woodley was scheduled to make $8 million this season, which would have been the fourth year of a six-year, $61.5 million deal signed before the 2011 season.
Woodley, 29, was a productive pass-rusher during a four-year stretch from 2008 to 2011 but struggled in recent years and lost his usual starting position of left outside linebacker to Jason Worilds, moving to the right side this past season.
Woodley had just five sacks this past season but still will be one of the top pass-rushers available on the free-agent market. A second-round draft selection in 2007, Woodley has spent his entire career with the Steelers, recording 57 sacks.