General manager Rob Hennigan announced Friday that the team has bought out the 28-year-old forward's contract, which will make him a free agent once he clears waivers. The roster now stands at 12 players.
The Clippers and Nets are among several teams interested in him once he clears waivers, two sources told ESPN.com Friday.
Terms weren't released but Davis, who was averaging 12.1 points and 6.3 rebounds in 45 games this season, is making just over $6 million this season and is due to make about $6.6 million next season.
"As we continue to chart what we believe is the best course of action for our organization, maximizing the development of our young players remains of critical importance," Hennigan said in statement. "This agreement allows us an opportunity to do just that."
Davis' name was mentioned as a possible movable asset for the Magic before Thursday's trade deadline, but the team ended the day without making any moves. The buyout ends his three-season run with the Magic, which began in lockout-shortened 2011-12 season after he was dealt from the Boston Celtics in a sign-and-trade.
With Davis gone, it will likely mean more playing time at power forward for Tobias Harris, as well as for second-year forwards Andrew Nicholson and Kyle O'Quinn. Both Nicholson and O'Quinn saw their minutes diminish after Davis returned from injury.
Davis had also played center at times in relief of Nikola Vucevic, but those duties will likely shift to O'Quinn.
Magic coach Jacque Vaughn acknowledged that the departure of a starter would require adjustments in the rotation, but he cautioned that the lineup they played with against New York could change in coming games.
"We'll see where we go from here. Who starts tonight, I'm not saying it will be our lineup for the rest of the year. But Tobias will start and we'll go from there," Vaughn said.
"I suppose you might see a little diet of me, Vic and Jameer," Afflalo said. "So there's probably a chance I will be at the three some. But I don't know how we'll finish, or start for that matter."
Known by the nickname "Big Baby," Davis was averaging career highs in points and rebounds last season before a left shoulder injury and broken foot limited him to 34 games.
He returned from those injuries after missing the first 11 games this season and started 43 of the 45 games he appeared in. But it was clear from the start of the season that it was unlikely Davis fit into the Magic's long-range rebuilding efforts.
While Davis had some high points in a Magic uniform, his time with the team also featured a handful of negative moments.
He had a disagreement with former coach Stan Van Gundy during a practice in 2012 that concluded with him damaging a locker room wall. The team also fined him earlier this season after he was caught on tape doing minor damage to a hotel lobby following a disagreement with a clerk.
Those incidents aside, Nelson said he has happy memories of Davis' tenure.
"My time here with Glen has been great," Nelson said. "He's a great teammate, and despite what other people think of him, I think he's a great guy and I just wish him the best of luck.
"I'm not sure what it means for our team in terms of roles or anything like that. But he did bring a toughness and was definitely a big part of our defense in terms of being a defensive presence and being there for guys. Somebody has to step up and fill that role."
The Associated Press contributed to this report.