The move was expected since Sheppard was due a $10 million roster bonus.
Sheppard was acquired last offseason in a trade with the Philadelphia Eagles to play opposite Darrelle Revis in the secondary, but started just nine games because of quadriceps injuries and inconsistent play. He ended up costing the Jets a fourth-round draft pick this year.
The clearest sign that Sheppard's time with the Jets was done was when he was benched in favor of second-year cornerback Dwight Lowery in the AFC championship game against Indianapolis.
A former first-round pick of the Eagles in 2002, Sheppard had 30 tackles, one interception and nine passes defensed in 11 regular-season games with the Jets.
With Sheppard gone, the Jets are expected to target a cornerback through a trade or with the 29th pick in the draft next month.
Sheppard is the second big-name player to be released by the Jets this offseason. New York announced earlier in the week it would cut ties with running back Thomas Jones when the NFL's free agency period starts Friday. Jones, who ran for a career-high 1,402 yards and 14 touchdowns, was due a $3 million roster bonus on top of a $2.8 million base salary.