The 29-year-old, who joined the Top 14 club in February, recently served a one-week suspension for a nightclub brawl with team-mates and had been waiting to discover whether he would be welcome back next term.
Club president Mourad Boudjellal told the French newspaper Var-Matin: "We do not want blame anyone, but for next season we hope that team spirit is a priority."
Henson joined Toulon for an initial five months to cover for the injured Clement Marienval, hoping to convince head coach Philippe Saint-Andre to give him a new two-year deal as well as revive his Wales career ahead of the World Cup.
Though he has had some success with the latter part of that equation, having been named in the Wales squad to face the Barbarians next week, it appears his off-field behaviour has cost him any chance of a long-term deal at Toulon.
Henson last played for his country in the 2009 RBS 6 Nations before a combination of personal problems and injuries prompted him to take unpaid leave from the Ospreys.
After some reality television appearances, he signed with Saracens to end an 18-month period out of the game but made only four appearances and just one start in four months at the club.
The 29-year-old was initially hampered by a hamstring injury on his arrival in France, but made a try-scoring debut against Stade Francais and made his second start in another victory over Toulouse.
The decision not to keep Henson follows hot on the heels of the high-profile signing of former rugby league star Willie Mason, who is expected to play at centre.
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The entire All Blacks apparel line has been updated for 2013/14. Check out the New Zealand All Blacks polo.
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