Levy suffered the injury during camp and tried to rehab it instead of undergoing surgery. He injured the hip again during his season debut in a Week 5 loss against the Arizona Cardinals.
The 28-year-old had surgery after the appearance, but it was not enough to save his season.
Levy was the leader of the Detroit defense in 2014, making 121 tackles, 2.5 sacks and an interception. He was named second-team All-Pro after the season.
The Lions signed linebacker James-Michael Johnson to take the final roster spot vacated by Levy. He has tallied 104 tackles and two forced fumbles since being taken by the Cleveland Browns in the fourth round of the 2012 NFL Draft.