Greek forward Fountas was suspended by the MLS side along with team-mate Robertha on July 22 but the Dutchman was reinstated by the club two days later.
The 25-year-old reportedly told team officials that Fountas used a racial slur towards him during a match against New England Revolution on July 15, which led to an investigation.
Now, the Washington outfit have decided to part ways with the 27-year-old, who was also placed on leave after an Inter Miami player alleged he used a slur during a game in 2022.
The MLS said it could not conclusively prove those allegations but they were "credible", however, this investigation has led to a different outcome.
A club statement on Thursday reads: "D.C. United and forward Taxi Fountas have mutually agreed to terminate his contract, effective immediately. Fountas was placed on administrative leave by MLS on July 21 following what the league determined were credible allegations that he used prohibited and discriminatory language against another player.
"There is no place for racism, homophobia, misogyny, or discrimination of any kind in our sport and world and D.C. United do not tolerate any acts of this nature."
Last week, The Athletic claimed that Fountashad commissioned a polygraph testin an attempt to clear his name and that in interviews with MLS and D.C. officials he has continued to deny using the slur.
Fountas played 33 times for D.C. and scored 16 goals over the course of two seasons with the club.