The amnesty clause allows each team to waive one of its player contracts that was in effect prior to the 2011-12 season and have 100 percent of the player's salary removed from the team's salary for Salary Cap and Tax purposes.
Arenas' remaining contract will not count against Orlando's salary cap, but the team must pay out the contract unless another franchise claims the 29- year-old in a modified waiver process.
The Magic acquired Arenas from the Wizards last December in exchange for forward Rashard Lewis. He appeared in 49 games with Orlando, averaging just 8.0 points and 3.2 assists per game, significant decreases from career marks of 21.2 ppg and 5.4 apg.
Arenas, a three-time NBA All-Star, has appeared in 535 career regular season games with Golden State, Washington and Orlando.
He was suspended for the final 50 games of the 2009-10 season after brandishing a gun in the Wizards' locker room and subsequently pleading guilty to felony gun possession charges.