By opting for a $500,000 buyout instead, the Indians will allow Sizemore to enter the free agent market immediately, the team said on their website.
The 29-year-old was limited to just 71 games last season, hitting .224 with 10 homers, 21 doubles and 32 RBI.
Over the last three years, Sizemore has played in only 210 games while undergoing five surgeries, two of them on his troublesome knees.
A two-time American League Gold Glove Award winner, he began this year on the disabled list while recovering from microfracture surgery on his left knee.
As the 2011 season unfolded, he went on to have further surgeries on his right knee and to address a sports hernia.
While Sizemore departs, the Indians have exercised their $9 million 2012 club option on starting pitcher Fausto Carmona, who went 7-15 with a 5.25 earned run average in 32 starts last season.
The sinkerballing Carmona stayed healthy throughout the 2011 campaign and gives the Indians an experienced layer of depth.
(Writing by Mark Lamport-Stokes in Los Angeles; Editing by Frank Pingue)