The 7-foot-3 Ilgauskas, who was acquired from Cleveland on Feb. 17 as part of the three-team trade that sent Antawn Jamison to the Cavaliers, didn't play for Washington. He reported on Feb. 19, took a physical and immediately returned to Cleveland.
The 34-year-old is averaging 7.5 points and 5.3 rebounds this season.
"We agreed to terms with Zydrunas on a contract buyout, giving us further financial flexibility and allowing our young big men to continue to develop over the remainder of the season," Wizards president Ernie Grunfeld said.
No team is far enough under the salary cap to absorb Ilgauskas' $11.5 million salary for this season, so he will become a free agent eligible to join any team for a prorated share of the veteran's minimum. He would be able to rejoin the Cavaliers in 30 days, but could sign with another team immediately.
"I'm expecting to talk to about half a dozen teams in the league — including the Cavaliers," Herb Rudoy, Ilgauskas' agent, said.
"He's not going to rush into anything. He has time," Rudoy said. "He'll let me know what he wants to do."
Though he lost his starting job this season after the Cavs acquired Shaquille O'Neal, a return to the Cavs could be attractive for Ilgauskas. He's spent his entire career in Cleveland after he was drafted in 1996, and the Cavaliers are one of the favorites to win the NBA championship this season.
Over his 12-year career, Ilgauskas has averaged 13.9 points and 7.7 rebounds.