General manager Ross Atkins announced the decision Tuesday in a season-ending news conference. Atkins said Bautista was made aware of the team's plans "a couple of weeks ago."
"Based on the construction of our roster, we feel it's unlikely that he's a part of the solution moving forward," Atkins said.
Bautista signed a one-year, $18 million contract to return to the Blue Jays in 2017. That deal included a $17 million option for 2018, with a $500,000 buyout, and a $20 million option for 2019.
Bautista hit .203 with 23 homers and 65 RBI, setting a Blue Jays' single-season record with a career-worst 170 strikeouts.
Bautista led the majors in home runs in 2010 and 2011, and delivered the famous "bat-flip" blast that helped beat Texas in the 2015 AL Division Series.