The 33-year-old Pace was the first overall pick of the 1997 draft. The move cleared $6 million in cap space for the Rams, who were 2-14 last season.
Owner Chip Rosenbloom said in a statement that Pace would be remembered as "one of the finest Rams of all-time." Pace started 14 games last year but missed half of 2007 and virtually all of 2006 because of injuries.
"I can't begin to thank Orlando for all he has meant to the Rams organization," Rosenbloom added. "It is never easy to end a relationship that has had as much success as ours, but in the interest of Orlando and the Rams, we feel now is the right time."
The Rams signed an offensive lineman at the start of free agency with center Jason Brown getting a four-year, $37 million deal.
Pace was the first offensive lineman chosen No. 1 overall since the Minnesota Vikings took Ron Yary in the 1968 draft. The Rams dealt four draft picks -- a first-, third-, fourth- and seventh-rounder -- to the New York Jets for the right to move up five spots on draft day.
The former Ohio State star was selected to seven straight Pro Bowls from 1999 to 2005 and started in two Super Bowls, including the franchise's lone title after the 1999 season.
"Orlando Pace has been a mainstay on the Rams' offensive line since he was drafted in 1997, and he has proven to be one of the most efficient offensive tackles throughout his career," general manager Billy Devaney said.
The Rams are also considering releasing another longtime star, wide receiver Torry Holt, a move that would save them an additional $8 million in cap space.
Pace's Pro Bowl haul is tied with Jack Youngblood for fourth in franchise history. Only Hall of Famers Merlin Olsen (14) and Tom Mack (11) and linebacker Les Richter (eight) were selected to more. Pace blocked for three consecutive MVPs from 1999 to 2001, quarterback Kurt Warner in 1999 and 2001 and running back Marshall Faulk in 2000.