Davis, 29, was scheduled to be a free agent after the season. The Colts will have to pay the remaining portion of Davis' $9 million base salary for 2017 if he goes unclaimed on waivers.
A source confirmed to ESPN on Wednesday night that Davis, after seeking additional medical opinions, had made the choice to undergo season-ending groin surgery. The recommendation that Davis undergo surgery was first reported by the Indianapolis Star.
Earlier Wednesday, Davis said he felt disrespected when the Colts left him behind for last weekend's game at Houston.
The Colts sent out an announcement Saturday, saying Davis would not make the trip for their game against the Texans the next day. The email said Davis' situation was "non-injury related." Coach Chuck Pagano repeated several times after the game, a 20-14 victory, that leaving Davis behind was a coach's decision.
Davis had a different version of events. Davis said he hasn't played well this season because he's still dealing with the groin injury he suffered against Pittsburgh in the third preseason game, which caused him to miss the first three weeks of the regular season.
"I had a groin tear that I dealt with," Davis said. "I got different opinions on it. One doctor said I should have had surgery, other doctor told me to let it heal. I took the let-it-heal approach. I came back, and probably came back a little too early, and in the process I probably hurt my teammates."
When asked why Pagano said it was a non-injury situation, Davis said, "I can't really control what Coach P said."
Davis made his comments inside the locker room after Pagano had already addressed the media Wednesday.
Davis has been listed on the injury report just twice since Week 4, with both days listed as "rest days."
Defensive coordinator Ted Monachino and defensive backs coach Greg Williams -- not Pagano -- told Davis last week that he was being demoted.
"It's a disagreement because I feel like I was demoted because of my health instead of my ability," Davis said. "The agreement is I take full responsibility. I'm not myself. I'm not Vontae Davis. Obviously I know what level I can play at. I've been working trying to get back, like I have with previous injuries. In this situation it just hasn't worked for me because of my injury, it was significant. It was a groin tear."
The Colts failed to trade Davis prior to the trade deadline last week. He has only 16 solo tackles with just two passes defended this season.
In 120 career games spanning nine seasons with the Colts and Dolphins, Davis has made 112 starts with 399 tackles and 22 interceptions.