The moves were made by the NL West leaders before they hosted the Cincinnati Reds.
Lilly, 37, was 0-2 with a 5.09 ERA in five starts this season, and has been on the disabled list three times. He missed the first 3 1-2 weeks while recovering from shoulder surgery, then sat out another three weeks with a ribcage strain. He hasn't pitched since June 4 because of a neck strain.
"Nobody wanted to do this,'' Dodgers manager Don Mattingly said. "We all like Ted and we think he can still pitch. It just got to the point where we had to make a decision. He was very classy about it.''
Lilly, a 15-year veteran and two-time All-Star, was 24-21 with a 3.83 ERA in 58 starts with the Dodgers after joining them in 2010. He was 5-0 with a 1.83 ERA in his first five starts and then signed a three-year, $33 million contract following that season.
"It's obviously not the way you want it to end for anybody,'' Mattingly said. "Teddy's a competitive guy, but it's been an injury thing. Teddy hasn't been able to stay on the field, and that's frustrating when you can't do that.''
Lilly didn't think his body could stand the rigors of being a starting pitcher again. He was willing to shift to a relief role, but he balked at the idea of going on a minor league rehab assignment first.
Lilly told Mattingly and pitching coach Rick Honeycutt it wasn't necessary.
"We wanted to set up a minor league schedule for him to basically try, to put him into the fire a little bit to see how it would look, but we weren't able to do that,'' Mattingly said. "The way our bullpen is situated right now, we didn't really feel like there was a spot for him that would give us the best chance to win.
"Teddy still thinks he could pitch out of the bullpen, and I really can't argue with that. It was just tough for us to make a move like that without seeing him try it instead of just displacing one of the guys we have right now.''
Herrera is batting .290 with six homers, 40 RBI and 14 stolen bases in 80 games with Albuquerque. He has played in three games during two stints with the Dodgers this season.
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