Pena and Cedeno were among the only experienced players on this rebuilding team.
Top pitching prospect Jarred Cosart, whom the team earlier announced would be recalled from Oklahoma City to start on Tuesday, will take the second open roster spot.
"Both Jonathan Villar and Jarred Cosart deserve to be here on this team at the major league level," general manager Jeff Luhnow said.
"When you look at the roster and how to create spaces for them, unfortunately, the veteran players who have been here and done a large part of what we hoped they would do -- provide leadership in the clubhouse and be a solid presence both on and off the field -- those spots were the ones we felt were easiest to access to bring up the younger guys."
The 35-year-old Pena, who hit 39 homers in 2009 with Tampa Bay, signed with the Astros in the offseason and hit .209 with eight homers and 25 RBIs in 85 games splitting time between first base and designated hitter.
Pena hopes he's picked up by another team so he can continue his career.
"I feel I have a lot of ball left," he said. "With this door closing it will open other doors, and I am ready to walk through them ... and embrace the opportunities that are about to come."
Cedeno, a shortstop, was hitting .220 with one homer and 12 RBIs.
The 22-year-old Villar has hit .278 with 16 doubles, eight triples, eight homers, 41 RBIs and 31 stolen bases in 90 games for the RedHawks.