Los Angeles was projecting to have $25 million in salary-cap space for the 2019-20 season. That number will increase to the $36 million to $38 million range, giving the Lakers room for another max-contract player next summer.
"We want to thank Luol for his time with the Lakers," general manager Rob Pelinka said in a statement. "We made this move to further our future salary cap and roster flexibility, as we continue to build this Lakers team according to our current overall vision."
Both sides worked diligently in the past few days to come to terms on a split that worked for both parties. Deng will enter free agency and command interest from several contenders, sources said.
Deng, 33, had two years remaining on a four-year, $72 million pact he signed in the summer of 2016. With the change in direction in hiring Magic Johnson to run basketball operations, the Lakers have committed to developing their young talent. Furthermore, with the addition of LeBron James this offseason, Deng's days as a Laker were numbered.
The 14-year veteran is a two-time All-Star and has career averages of 15.0 points and 6.1 rebounds per game. He played in only one game for the Lakers in 2017-18, appearing in the opener before being benched the rest of the season.
ESPN's Bobby Marks contributed to this report.