The 31-year-old midfielder spent nearly two years with TFC, accumulating 56 appearances over all competitions.
The 31-year-old joined TFC from the Vancouver Whitecaps on July 14, 2011. In the time since, Dunfield appeared 56 times for Toronto, playing in MLS, Canadian championship and CONCACAF Champions League matches for the Reds.
He scored six goals for Toronto.
“This was a difficult decision to make but our midfielders have been playing well, and there are young players to develop and find minutes for," TFC head coach Ryan Nelsen said in a club statement. "We felt this was the best decision for both the club and Terry moving forward.
“On behalf of everyone at Toronto FC, we’d like to thank Terry for his contributions to the club and wish him well in his future endeavors.”
A Canadian international, Dunfield has earned 12 caps since debuting for Canada in 2010, scoring his only goal in a friendly against Ecuador at BMO Field in 2011.