The move came three days after reports surfaced that the Panthers were trying to trade their all-time leading receiver.
"When I took this position, I knew that difficult decisions would have to be made along the way," general manager Dave Gettleman said in a statement. "To move on from a storied veteran player is probably the most difficult of all, a decision not to be taken lightly. However, after much thought I feel very strongly it's the right one.
"As I've stated many times, all decisions I make will be in the long-term best interest of the Carolina Panthers. Decisions, either popular or unpopular, have to be made for the greater good and it is imperative to take an unemotional global view."
The Baltimore Ravens called to express interest in Smith within minutes of his release, a league source told ESPN.com. The Ravens are the favorites to sign Smith, a league source told ESPN NFL Insider Adam Schefter. Smith will to fly to Baltimore tonight to spend Friday meeting with Ravens coaches and officials, a source told Schefter.
"I'm going to get a few free dinners out of it at nice, expensive restaurants and see what it's [recruiting process] like," Smith said on Sirius XM's Bleacher Report Radio. "I want to enjoy and absorb this experience that, quite frankly, I will never experience again.''
Smith didn't hint at which teams he will consider but said he's had calls or text messages from players from New Jersey to Phoenix to Indianapolis asking him to come help them "chase the ring.''
As for how much longer he wants to play, Smith said "as long as I'm able to contribute to a team successfully.''
"I am no longer a No. 1 wide receiver and I know that,'' he added. "And I've been knowing that, and I don't have a problem with that. I will adjust to whatever team and whatever role that I would have. The only thing is I would like to know what that role is and what the expectation is so I can exceed it.''
Smith sent a warning to the Panthers regarding his next team in a radio interview with WFNZ-AM in Charlotte. "If that happens to run through Bank of America Stadium, put your goggles on because there's going to be blood and guts everywhere."
Gettleman said that while it appears the decision might be a step backward for the team in the short term, that is not his intent.
"Nevertheless, like all NFL teams, we are in transition as we try to get into the best position going forward," he said. "When Mr. [Jerry] Richardson hired me, I promised him that my goal would be to leave the Panthers in a better position than when I came. All my efforts are in that vein.
"Over the next few months we will have the opportunities afforded by free agency and the college draft to improve our roster. We also have young players who will get an opportunity. I have great trust in our evaluation process."
Coach Ron Rivera said Smith was an important part of the team.
"I have coached against him and have had the benefit of having him on the Panthers," Rivera said. "He is a great competitor with Hall of Fame-worthy statistics and has made a great contribution to our community. I wish him nothing but the best."
Smith was set to count $7 million against the salary cap in 2014. Carolina will have to pay the five-time Pro Bowler, who will turn 35 in May, $5 million this season in guaranteed salary and deferred bonus.
A possible replacement for Smith is New York Giants free agent Hakeem Nicks, a native of Charlotte. Nicks recently told ESPN's Josina Anderson that Carolina, Indianapolis and San Diego were his top three landing spots.
Smith's agent, Derrick Fox, said Wednesday that Smith would not return to the team based on the way he'd been treated the past few weeks. He said the damage done by Gettleman in his attempts to trade Smith was "irreparable."
Smith's release leaves the Panthers without any of their top four wide receivers from 2013 under contract. Brandon LaFell and Ted Ginn Jr. are free agents, and on Thursday the Chicago Bears also announced via Twitter that they've agreed to a one-year deal with Domenik Hixon.
Since being selected in the third round of the 2001 draft, Smith has 836 receptions for 12,197 yards and 67 touchdowns. He had 64 catches for 745 yards and four touchdowns last season.
With his numbers declining and with concerns that he wouldn't be able to accept a lesser role moving forward and could become a distraction, the team opted to cut ties.
Smith's future with the team came into question at the NFL scouting combine last month when Gettleman said the receiver's role for 2014 was under review.
"Steve's had a great career," Gettleman told reporters in Indianapolis. "He really has. None of us are here forever."
Smith acknowledged that he was disappointed when he heard reports that Gettleman was reviewing his position on the team.
"It is devastating to hear and know that you're getting fired, but it's also exciting because that frees me up to obviously be pursued by other teams,'' Smith said.
Smith didn't address Gettleman on the radio but did say, "I believe my legacy as a Carolina Panther exceeds one individual or a short amount of time."
Smith met with Gettleman last Wednesday. In an interview Thursday with Anderson at Clemson's pro day, Smith revealed little about the meeting.
Asked if he could imagine playing on another team, Smith said: "It's a business and I understand that, and ultimately decisions aren't up to me. I'm a player. At the end of the day, if a team decides to move on, I have to either accept that or I go sit at home and cry about it. So we'll see."
Among the teams reportedly interested in Smith now that he has been cut is Baltimore.
Smith told Anderson his future was "bright."
Last season, Smith said his goal was to play 15 or 16 seasons in an attempt to rank among the top 10 in the league in receptions and receiving yards.
Smith is known as one of the most passionate players in Panthers history. He also is known as one of the most volatile, having been involved in three altercations with teammates early in his career.
The most public came in 2002, when Smith broke the nose of practice squad player Anthony Bright during a film session. Smith was arrested and suspended for a game.
But Smith has been trouble-free since a 2008 training camp incident with teammate Ken Lucas, becoming heavily involved in his foundation that promotes causes such as his recent fight against domestic violence.