Since leaving Yamaha at the end of 2010, after winning four of his six MotoGP titles with the team over a seven-year period, Rossi has struggled at Ducati.
The all-Italian partnership has been unable to shine, with the 33-year-old failing to win a race and only stepping on to the podium twice in 27 grands prix overall.
A statement from Ducati read: "As the MotoGP series awaits its return to action for the August 19 Indianapolis Grand Prix, Ducati announces that its working relationship with Valentino Rossi will conclude at the end of the 2012 MotoGP World Championship.
"Ducati wishes the Italian well for the new challenges that await him, and in the meantime, the team will continue to give its best effort in order to improve over the latter part of the season.
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"Racing has always been in Ducati's DNA, and now more than ever, it is integral to the Borgo Panigale company's product development and image. Audi shares Ducati's strategic approach and agrees with its growing commitment to competition.
"Therefore, having recently renewed its agreement with American Nicky Hayden, Ducati is in the process of finalising the team that will take part in the 2013 world championship, confident that its team and bike will be capable of competing at the highest level."
It is understood Yamaha are to shortly confirm the arrival of Rossi, who has seven world titles overall to his name.