The source said the team and Castillo's representative have agreed to let him go at this time, and see what his value is in other markets. However, the Chargers also made it clear they want him back.
The San Diego Union-Tribune had earlier reported Castillo's pending release.
Castillo, 28, broke his left leg in the season opener on Sept. 11 and the Chargers kept him on the active roster in the hope he'd be healed toward the end of the season but ultimately placed him on injured reserve in December.
He agreed to a five-year extension with the team in 2008. The Chargers selected him in the first round of the 2005 draft.
Castillo tested positive for androstenedione, which is considered a steroid by the NFL, at the 2005 scouting combine. He sent a letter to the 32 NFL teams alerting them of the situation, saying he took it after his final season at Northwestern because of a slow-healing elbow injury.
After being drafted by the Chargers, Castillo said it was "a huge mistake" to take the drug to help his performance at the combine. He promised to return his entire signing bonus if he ever tested positive again.
He's since stayed clean.
In 82 career games he has 210 tackles, 19 sacks, two forced fumbles and two interceptions.
Information from ESPN's Josina Anderson and The Associated Press was used in this report.