Nowitzki, who has previously stated on several occasions that he planned to play out his three-year, $25 million deal, announced his decision during an appearance Monday on 1310 The Ticket in Dallas.
"We had one more year on the contract, but I think this is the right thing to do," he said. "We're going to sit with [owner] Mark [Cuban] and [General Manager] Donnie [Nelson] obviously over the next few weeks and figure out how to improve this franchise again.
"Ever since after the championship, we've been basically a first-round exit. We've been a seven, eight seed. We've only won a few playoff games, and obviously the goal was to compete at the highest level in my last couple of years. So there is some moving to do, some thinking, some putting our heads together the next few weeks heading into free agency, heading into the draft. So this is just one move that hopefully starts a chain reaction for us to get better again, to compete really at a high level. We'll see how it goes."
Nowitzki, 37, would have made $8.7 million next season if he opted to complete his three-year contract. He could take a lower salary to give the Mavs more flexibility this summer.
Nowitzki, the sixth-leading scorer in NBA history, has said that it would be special for him to join Kobe Bryant as the only players to have a 20-year career with only one franchise. That would require Nowitzki to play two more seasons with the Mavericks.
Nowitzki reiterated Monday that he is committed to remaining with the Mavs for the rest of his career, saying that decision was essentially made when Dallas won the championship in 2011.
"That would have been the only scenario where I go somewhere at the end to kind of hang on and maybe try to win one," Nowitzki said, referring to what he might have done if he hadn't won a ring. "But ever since I won a championship here and we did that, I want to finish my career here. I always said that. The only scenario where I'll try to go somewhere is if we're rebuilding, if we really say, 'This is the end of the line. We tried every which way and we can't go any further and we're starting basically with five rookies.'
"Obviously, that's not what I want my last couple of years. But knowing Mark and Donnie, they always want this to be a winning franchise, so there's no reason for me to go anywhere."