The 37-year-old was seen as major coup when he completed his surprise move to Selhurst Park in August, but the former Juventus and Inter Milan star failed to live up to expectations and was even deployed at left-back by manager George Burley.
Speculation had surfaced that Davids may hang up his boots after finding it hard to settle in South London, and they were proved true on Monday morning when he confirmed that he was leaving the Championship strugglers.
"Today I have decided that my journey as a player of Crystal Palace FC has come to an end," Davids wrote on his official website.
"I want to thank all the people who supported me and gave me one of the greatest experiences of my life."
The Champions League winner, regarded as one of the best in his prime, enjoyed his most successful spell at Juventus where he won the league title three times and also played for Barcelona, Ajax and AC Milan.
His last appearance for Palace was in the 3-0 loss to Swansea, and it is now believed that Davids will look to secure a coaching role at his boyhood club Ajax.
Crystal Palace released a statement on their official website, which read: "The club would like to thank Edgar for his time here and wish him all the best of luck for the future."
By Matt Maltby
