Proud was informed of the decision by the Club during a meeting with Lions officials this afternoon.
Proud was suspended indefinitely by the Club following a police matter last month.
Lions General Manager - Football Operations, Dean Warren, said: "The Brisbane Lions will no longer compromise our standards and expectations, as we seek to build a strong culture for the long term benefit of all players and the Club as a whole."
"Whilst Albert was extremely disappointed with the decision, he understood our position."
"We have offered Albert ongoing support to assist in his transition out of an AFL environment which can often be a difficult time for some players."
Proud had been handed a rookie list opportunity by the Lions this year after being delisted at the end of the 2010 season.
There will be no further comment from the Club.