Bieniemy's decision, as first reported by 9News in Denver, follows that of Alabama offensive coordinator Steve Sarkisian, who also has dropped out of the search, sources told ESPN's Chris Low on Thursday.
Bieniemy starred at running back for Colorado from 1987 to 1990 and finished his career as the school's career rushing leader (3,940 yards). He had two assistant coaching stints with the Buffaloes following his NFL playing career.
He has spent the past seven years with the Chiefs. Bieniemy drew interest from several NFL teams for head-coaching vacancies this offseason, but all went in different directions.
Colorado is looking to fill the vacancy after Mel Tucker left to take the Michigan State head-coaching job earlier this month.
Darrin Chiaverini has been serving as interim head coach.
ESPN's Adam Schefter and Mark Schlabach contributed to this report.