The Bulgarian forward moved to Stade Louis II from Fulham in January 2014 and he scored 13 goals in 38 Ligue 1 appearances.
Berbatov, though, will not be extending his stay, with Monaco releasing a statement on Monday praising the 34-year-old for his "character, his professionalism and his great talent".
Monaco president Vadim Vasilyev added: "He is clearly among the greatest strikers who have played for Monaco. We are proud of what he brought to the club and wish him the best in the future."
The former Tottenham and Manchester United striker has been linked with a return to the Premier League with newly promoted Bournemouth.
Monaco also confirmed that Maarten Stekelenburg will return to Fulham following the end of his loan deal.