The two-year starter had previously been suspended by Kelly for the entire 2010 season in March prior to the start of spring practice after Masoli pled guilty to misdemeanor charges surrounding a burglary during the winter term.
Kelly said he would not comment further in regards to the situation.
Masoli led Oregon to 10-3 records each of the past two seasons and its first Rose Bowl appearance in 15 years in 2009. He was selected a second-team all-league choice by the Pacific-10 Conference coaches a year ago after completing 177 of 305 passes for 15 touchdowns and six interceptions, in addition to running for 668 yards and 13 scores.
Earning MVP honors at the 2008 Holiday Bowl after leading the Ducks to a 42-31 win over Oklahoma State, the San Francisco native finishes his Oregon career as the school's all-time rushing leader among quarterbacks (1,386 yards) and ninth on the program's career total offense chart (5,277 yards).
Masoli has one season of collegiate eligibility remaining.
Masoli Dismissed from Oregon Football
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