The 25-year-old had been under investigation by Northampton after he posted an alleged racist tweet about double British Olympic gold medallist Mo Farah, for which he later made an apology.
But Saints say a decision to terminate Sharman's contract was made because of a knee injury that has sidelined him since January, stating there is "no immediate prospect" of a return to full fitness.
Northampton rugby director Jim Mallinder said: "It is always a shame when someone's contract comes to an end in these circumstances.
"Brett has contributed a lot to the squad in his time at Franklin's Gardens, and we wish him all the best for the future."
Sharman, in a statement released by Saints, added: "I have enjoyed my time at the Saints.
"It is a great club with good people, and I am sure that there will be major success coming to Franklin's Gardens sooner rather than later.
"The players, management and supporters all deserve that, and I wish them every success."
Sharman's tweet, which was posted ahead of Farah's Olympic 5,000 metres final almost two weeks ago, was deleted shortly after it had been sent. Sharman made a public apology and closed his Twitter account.
Farah, who added the 5,000 metres Olympic title to his 10,000 metres gold at London 2012, was born in Somalia and came to live in the United Kingdom, aged eight.
In a statement released on Thursday, Northampton said: "Northampton Saints treats all such matters seriously.
"The club has a clear policy regarding social media and is following the procedures set out in that policy.
"Northampton Saints do not comment on individual cases."
And Northampton spokesman Chris Wearmouth told the Northampton Chronicle and Echo: "We have clear social media guidelines and we have regular meetings with the players over the use of Twitter throughout the year.
"They are reminded of their responsibilities and their place in Northampton society, playing for the biggest club in town.
"We are all aware that social media can have a positive effect. It's a great channel for fans to ask questions and players to answer them directly, but there are potential pitfalls.
"Fans expect our players to be role models.
"It can be very easy to tweet in the heat of the moment. Sometimes it's better to put the phone back in the pocket, think about it and tweet a more considered view later on."
Gilbert has released a new line of rugby cleats. The Gilbert Virtuo 8S is part of the exciting new product. Check it out.
The entire All Blacks apparel line has been updated for 2013/14. Check out the New Zealand All Blacks polo.
The Nike Tiempo is a solid rugby cleat and one of few styles still made from full-grain natural leather.
The Gilbert Blitz 8S rugby cleat is a great cleat at a great price of $69.99. Get a new pair of cleats today.
A cool looking all black rugby cleat with the high performance adidas is known for. Get in the Gear!
Wear the crest of the British and Irish Lions on your t-shirt. A great look for the summer.
The All Blacks Performance t-shirt is black with hints of blue from the training jersey. Very Cool.
The New Zealand All Blacks training jersey for 2013/14. Get in the Gear!
The USA Rugby Pro Alternate rugby jersey is perfect for any fan of the Eagles. Get yours to wear during the summer Test matches.
The NEW All Blacks 2013/14 jersey has arrived at World Rugby Shop. Dare to wear the colors of the All Blacks.