Had he passed, Otah would have competed for the Jets' starting right tackle spot.
"He did everything we asked for the past week and the terms of the trade weren't met so he's going back to Carolina," Jets general manager Mike Tannenbaum said.
The Jets' offensive line struggled last season to protect quarterback Mark Sanchez, and Wayne Hunter took the brunt of the criticism. Tannenbaum said he would be comfortable going into the season with Hunter as the starter, but would not rule out the possibility of bringing another lineman in to compete for the spot.
Otah had seven days from his first failed physical to pass, a somewhat unusual clause, but apparently the test drive didn't work out. The Jets made the trade for a conditional seventh-round pick, and if Otah was on their roster at 4 p.m. ET on Tuesday that pick would have been due.
"Sometimes you can get a longer period of time, sometimes you can't," Tannenbaum said.
Otah worked out on the sidelines but never made it onto the field in a jersey.
Otah, a first-round pick in 2008, has had knee problems and has participated in only four games since the 2009 season.
Carolina appeared ready to move on without him. Byron Bell started in Otah's right tackle spot last season and performed well. The Panthers also have depth at that position with Bruce Campbell and Garry Williams.
It's unclear if the Panthers will try to keep Otah or attempt to work out an injury settlement and release him.
Panthers coach Ron Rivera said he has been impressed with left tackle Jordan Gross and the three players competing for the right tackle spot Otah once held.
"What our four tackles have done for us has been excellent," Rivera said. "I'm very happy and excited about what they're doing."
Information from The Associated Press was used in this report.