As per the amnesty clause, the Cavaliers will pay Davis the remainder of his contract, but it will not count against the team's salary cap total.
The move comes just hours after Cleveland announced that Davis has a bulging disc in his back and will be out indefinitely.
Davis played in 43 games for the Los Angeles Clippers last season before being dealt to the Cavs at the trade deadline. In 58 total contests last year, Davis averaged 13.1 points, 6.7 assists and 2.7 rebounds.
"We would like to thank Baron for his contributions to the team during his time in Cleveland," Cavs general manager Chris Grant said. "He has been an absolute professional since the day he joined the Cavs and we now wish him the best in the future."
The 12-year pro out of UCLA has career averages of 16.5 points, 7.3 assists and 3.9 rebounds over 806 games (678 starts) with the Hornets, Warriors, Clippers and Cavaliers.