Ellis, 27, had until Thursday to decide on a player option for $11 million next season and informed the Bucks on Monday morning he has decided to test the free-agent market.
Acquired from Golden State in the Andrew Bogut trade on March 13, 2012, Ellis averaged 18.9 points, 3.8 rebounds and 6.0 assists per game in 103 games with the Bucks.
Ellis started all 82 games last season for Milwaukee, averaging 19.2 points, 3.9 rebounds and 6.0 assists per game while shooting 41.6 percent from the field, his lowest shooting percentage since his rookie year.
The Bucks reportedly offered Ellis a three-year, $36 million extension recently, with the extension requiring Ellis to not opt out of the final year of his current contract. Ellis reportedly declined the extension.
Milwaukee's leading scorer from a year ago, Ellis is expected to draw significant interest from other teams on the open market. Ellis is now an unrestricted free agent, unlike fellow backcourt mate Brandon Jennings, who is a restricted free agent.
With Ellis making his decision official, the Bucks can focus their strategy for the June 27 draft. Milwaukee has worked out numerous guards, including point guards Shane Larkin, Dennis Schroeder and shooting guards Kentavious Caldwell-Pope, Tim Hardaway Jr., Glen Rice Jr. and Ricky Ledo.