The Rockies have 10 days to release him or trade him, or Reyes will have to accept a demotion to the minor leagues.
"Jose is still a very talented player," Rockies general manager Jeff Bridich said. "There is a little bit of time to figure out that exactly means in terms of his true exit. We'll see what happens."
Reyes completed a 59-day suspension for violating Major League Baseball's new domestic violence policy. He was suspended through May 31 after being charged with domestic violence for an altercation with his wife in Hawaii last October. Prosecutors dropped the charge ahead of a trial scheduled April 4, saying Reyes' wife was not cooperating.
Reyes was assigned to Triple-A Albuquerque on June 1 and hit .333 in nine games with the Isotopes.
Bridich said a couple of teams expressed interest in Reyes, but "nothing truly serious ever materialized."
Bridich said the rest of the team was informed of the decision after Tuesday's win over the New York Yankees.
"This has much to do with the entire team that we have right here and the entire depth of players in our system," Bridich said.
The Rockies acquired Reyes from Toronto on July 28, 2015, in the six-player trade that sent popular shortstop Troy Tulowitzki to the Blue Jays. Reyes, 33, hit .259 in 47 games with Colorado last season.
Reyes, a four-time All-Star, had his best seasons while playing for the New York Mets. In 2006, he hit .300 with 19 home runs, 81 RBIs and 64 stolen bases.
Reyes signed a six-year, $106 million contract with Miami in 2012 that pays him $22 million this season and next year.
With Reyes suspended, rookie shortstop Trevor Story won the starting job out of spring training. He tied a major league rookie record with 10 homers in April and hit his 17th against the Yankees on Tuesday.
"All those things having to deal with as a young player, he just keeps his head down and keeps going," Rockies manager Walt Weiss said. "I've always said he's got the right combination of confidence and humility."
Story's emergence gave the Rockies options with Reyes.
"We talked through every conceivable situation," Bridich said. "At the end of the day, we felt it was best that we part ways. Best for the direction of the organization, best for what was going on in the clubhouse and best for Jose.
"We needed to make a good, sound baseball decision, really the best decision in every way for the organization. I feel that's what we did."