With Russell Westbrook sidelined due to a broken hand, Telfair saw an increased workload in Oklahoma City's backcourt. Over 16 games this season, he was averaging 8.4 points, 2.8 assists and 1.9 rebounds in 20.4 minutes per game.
The Thunder signed the 29-year-old in July after he spent the previous season playing in China. Telfair, who has also had stints with the Portland Trail Blazers, Minnesota Timberwolves and Boston Celtics, among other teams, was a first-round pick in the 2004 draft.
The release of Telfair brings Oklahoma City's roster down to the 15-player limit. The Thunder will keep Ish Smith, who they signed earlier this month using a hardship exception, as a reserve point guard.
Oklahoma City, at full strength, was considered a threat to win the Western Conference, but has scuttled to a 4-12 record while being decimated by injuries, including to Westbrook and three-time scoring champion Kevin Durant.
The Thunder host the New York Knicks (4-12) on Friday.