The NFL announced in July that Williams is suspended for the first four games of the regular season for a violation of the league's substance-abuse policy. He can serve the suspension as a free agent if he is not claimed off waivers or signed by another team.
"I've always said this is a performance-based business," Bills general manager Doug Whaley said Saturday. "The release of Karlos Williams was strictly performance-based. He came in behind the eight ball and never caught up. And there was other guys on the roster that moved ahead of him.
"In light of that, we thought, 'Why hold on to him?' Why don't we give him a chance to maybe find another job out there in the league?' We weren't going to hold on to him to the end, knowing he wasn't going to make the team."
Williams, 23, began training camp on the active/non-football illness list after he reported to minicamp in June out of shape. His weight went as high as 261 pounds during the offseason, a league source told ESPN's Adam Schefter. Williams attributed his weight gain to his pregnant fiancée's food cravings.
Williams, whose listed weight on the Bills' website was 230, was activated Monday from the non-football illness list and practiced this past week.
Whaley was asked if Williams was having trouble losing weight.
"I think it's a process, and he was so far out of reach for his goal, it was going to take a lot of time for him to get to where he needed to be," Whaley said. "While you're taking time, other guys are moving past you."
Williams took to Instagram to thank the Bills for his time in Buffalo.
The Bills' decision to release Williams represents a reversal of course from the team, which had supported him despite his poor conditioning and suspension.
"I think we're all excited about the talent he has," coach Rex Ryan said Monday. "It's clear this is a really talented young man and yeah, we hope that he's here for a long time and does the right things and handles himself well off the field. So that's something that we're counting on from him."
A fifth-round pick last season, Williams played in 11 games, starting three. He gained 517 yards on 93 carries and scored seven rushing touchdowns in addition to two receiving touchdowns.
Williams tied an NFL record last season by scoring a touchdown in each of his first six games played in the league. New England Patriots running back Robert Edwards also scored touchdowns in his first six games as a rookie in 1998.