Stengle, 27, still had three years left on a bumper five-year extension signed in 2024.
But the Cats confirmed on Friday they had reached a mutual agreement with Stengle and finalised it with his management and the AFL Players' Association.
The forward played only one VFL game this season amid off-field issues, and last played at the top level in Geelong's 2025 AFL grand final loss.
Stengle thanked Geelong, and especially head coach Chris Scott, assistant Nigel Lappin, former captain Joel Selwood, current skipper Patrick Dangerfield and head of player development and wellbeing Mark Worthington for their support.
"Geelong Football Club gave me another chance to play at the highest level and achieve a lot of highs and lows and to win a premiership and All Australian in 2022 will forever be my greatest achievements I would have never thought I would have done," Stengle said in a post on Instagram.
"But after a tough year or so I have made the decision to step away from AFL football and move home and be with family where I feel more comfortable. It was a tough decision but it was the best decision for me mentally.
"I will always be grateful for playing at the top level and playing in the biggest games of them all, it was always fun and exciting.
"Thank you to everyone who has supported along the way."
Last month, coach Chris Scott said Stengle was "miles off" a return and indicated there was a limit to Geelong's empathy.
"Tyson has shown tremendous resilience during his time at Geelong, and we believe now is the right time for both Tyson and the club to move forward," football boss Andrew Mackie said in a statement.
"We thank Tyson for his contribution to the Cats and celebrate what he has achieved in his football career."
The Cats' announcement came hours after Collingwood confirmed they had parted ways with Bobby Hill.
Stengle, started his career at Richmond, where he played two games, then played 14 games at Adelaide before he was cut in 2020 for off-field issues.
After a stint in the SANFL, Stengle was given a career lifeline by Geelong at the end of 2021.
The exceptionally talented small forward resurrected his career.
In his first season at Geelong, in 2022, Stengle kicked 53 goals, including four goals in their grand final win over Sydney, was named All-Australian and won a premiership.
"We would like to congratulate Tyson on what he has achieved over his career, including his time at Geelong," Mackie said.
"To play over 100 games, earn All-Australian selection and be part of a premiership team are achievements we are proud to have shared with him."
Stengle finishes his career on 109 games and 175 goals - with 93 games and 160 goals for the Cats.
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