The move clears $2.25 million in cap room for the Bills, who could submit an offer sheet for free-agent tight end Charles Clay following his visit to the team Wednesday. The Miami Dolphins assigned Clay the transition tag, giving them the right to match any offer.
Chandler, 29, played in 65 career games for the Bills and ranks third among tight ends in franchise history with 182 catches and 17 touchdowns.
Playing in 16 games last season, Chandler finished fourth on the Bills with 47 receptions for 497 yards and three touchdowns. He posted career highs with 53 catches for 655 yards in 2013.
Last season, the Bills used Chandler -- who is 6-foot-7 and 260 pounds -- in passing situations. He was replaced by Lee Smith when the Bills were more likely to run the ball.
Smith agreed to a three-year, $9 million deal Tuesday with the Oakland Raiders. After Chandler's release, the Bills have three remaining tight ends on their roster: Chris Gragg, MarQueis Gray and Chris Manhertz.