Coach Byron Scott announced the decision Sunday night before Los Angeles hosted the Dallas Mavericks.
Lin struggled for consistent playing time during much of his first season with the Lakers. He averaged 11.2 points, 4.6 assists and 2.6 rebounds per game while bouncing in and out of the starting lineup.
Rookie Jordan Clarkson became the Lakers' starting point guard, but Lin has been solid since the All-Star break, scoring 13.6 points per game.
He will be a free agent this summer after making nearly $14.9 million this season with the Lakers.
Lakers guard Nick Young was also formally declared out for the season by Scott with a broken left kneecap.