The 24-year-old joined the club last summer for a fee believed to be over £1 million under former boss Pedro Caixinha, but struggled to impress.
The former Portugal youth international made just 18 appearances for Rangers in his one season at the club, and has not played since the 3-2 defeat to Celtic in March.
The club announced on Monday that he would be leaving the club with immediate effect after a mutual termination was agreed.
Steven Gerrard has already brought in Connor Goldson and Nikola Katic, and revealed he is on the lookout for a third centre back before the transfer window closes.
Manchester City youngster Kean Bryan has been mooted as a possible signing, while David Bates and Bruno Alves have already departed Ibrox and Russell Martin’s loan from Norwich ended.
A statement on the Rangers website read: “We can today confirm a mutual termination of Fabio Cardoso’s contract has been agreed.
“He leaves with the best wishes of everyone at Ibrox.”