The team announced nine days ago that Heidfeld had been replaced by reserve Bruno Senna for the Belgian and Italian Grands Prix.
That came after an initial High Court hearing that determined the team were within their rights to sever their contractual ties to the veteran German driver.
However, that was only an interim decision pending a further case that was due to be heard on September 19.
Heidfeld believed he was contractually obliged to see out the season after being handed a race seat at the start of the year in the wake of Robert Kubica's horrific rally accident.
But that is not now required as Renault and Heidfeld have reached a settlement and parted company with immediate effect.
Team principal Eric Boullier, who last week cited Heidfeld's failure to adequately lead the team as one of the reasons for the axe, is relieved the matter is now finally at an end.
"Our disagreement with Nick has been the subject of much media coverage lately, and we are pleased to have reached a swift and reasonable solution," said Boullier.
"Our separation process was already a painful one, and neither of us wanted to go through another legal hearing.
"We're very grateful to Nick for the highly valuable contribution he made to the team.
"We certainly had good times together, in particular remembering our podium finish in Malaysia.
"He is a very strong and determined racer, and we wish him every success in the future."
At 34, and with 183 grands prix starts behind him, Heidfeld is in no doubt he will return to Formula One at some stage.
"Obviously I'm disappointed to be leaving Renault in the middle of the season," said Heidfeld, who remains without a win to his name.
"I thought I could still make a big contribution to the team, but I have to see things as they are, and I want to turn my attention to the future.
"We have taken the right decision by choosing to end our collaboration today [Friday]. One thing is for sure, I'll be back racing at the highest level soon."
Senna will now contest the remaining seven races alongside Vitaly Petrov, whilst Romain Grosjean, who won the GP2 title at Spa, acts as reserve.
Renault remain hopeful Kubica will be fit enough to return for next season.