The 36-year-old has reached an agreement to terminate his contract at Ewood Park with immediate effect.
His departure follows recent discussions with Rovers manager Gary Bowyer.
Murphy, who started his career at Crewe before spells with Liverpool, Charlton and Tottenham, spent five seasons with Fulham after joining them from Spurs in August 2007.
He moved to Blackburn last summer on a two-year contract and made 35 appearances for them last season, scoring two goals.
A statement on Blackburn's official website read: "The club would like to place on record its thanks to Danny for his efforts and we wish him well for the future."
Sky Sports understands that his former cub Fulham could offer Murphy a route back to the Premier League in a possible player-coach role.