The 25-year-old had been under investigation by Northampton after he posted an alleged racist tweet about double British Olympic gold medallist Mo Farah, for which he later made an apology.
But Saints say a decision to terminate Sharman's contract was made because of a knee injury that has sidelined him since January, stating there is "no immediate prospect" of a return to full fitness.
Northampton rugby director Jim Mallinder said: "It is always a shame when someone's contract comes to an end in these circumstances."
He added: "Brett has contributed a lot to the squad in his time at Franklin's Gardens, and we wish him all the best for the future."
Sharman, in a statement released by Saints, added: "I have enjoyed my time at the Saints. It is a great club with good people, and I am sure that there will be major success coming to Franklin's Gardens sooner rather than later."
Sharman's tweet, which was posted ahead of Farah's Olympic 5,000 metres final almost two weeks ago, was deleted shortly after it had been sent. Sharman made a public apology and closed his Twitter account.
Farah, who added the 5,000 metres Olympic title to his 10,000 metres gold at London 2012, was born in Somalia and came to live in the United Kingdom, aged eight.
In a statement released on Thursday, Northampton said: "The club has a clear policy regarding social media and is following the procedures set out in that policy."
And Northampton spokesman Chris Wearmouth told the Northampton Chronicle and Echo: "We have clear social media guidelines and we have regular meetings with the players over the use of Twitter throughout the year.
"They are reminded of their responsibilities and their place in Northampton society, playing for the biggest club in town."
- Mo Farah