"We have made the decision to not re-sign Donald. We're going in a different direction," general manager Buddy Nix said in a statement released by the team. "And this move today gives Donald the opportunity to catch on with another team early in the process."
Jones now will be eligible to become an unrestricted free agent on March 12.
This is the Bills' first significant roster move since Doug Marrone took over as coach last month in replacing Chan Gailey, who was fired after three losing seasons.
Jones made the Bills as an undrafted free agent in 2010. Despite showing signs of promise, injuries and inconsistent play limited Jones' ability to prove himself as a regular starter opposite Stevie Johnson.
Jones had a career-best 41 catches for 443 yards and four touchdowns in 12 games last season. He missed the final three games due to an undisclosed medical condition, which Jones said shouldn't prevent him from continuing to play.
Overall, he has 82 catches for 887 yards and six touchdowns in 35 career games, including 22 starts.
The Bills have decisions to make regarding other players before free agency opens.
Starting quarterback Ryan Fitzpatrick's future is uncertain. He has five years left on his contract, and is due a $3 million bonus next month.
Marrone, who spent the previous four seasons turning around the Syracuse Orange, is in the midst of evaluating his roster and hasn't yet determined Fitzpatrick's future. The Bills have yet to contact Fitzpatrick regarding his future or allow him the option to restructure his current contract.
The Bills also have the option to tender third-year receiver David Nelson a contract to retain his rights.