The 34-year-old Bradford born player signed a one-year contract with the Blades when he signed from Birmingham City for an undisclosed fee at the end of August, but he has been informed he will not be retained.
Donaldson scored five goals for the Blades in 2017-18, including two on his debut at Sunderland in early September.
Full-back Chris Hussey, who spent this season on loan at Swindon before his stint in Wiltshire was terminated early, will also leave the club at the end of his existing deal, while seven players have been made available for transfer.
They include the quintet of George Long, Louis Reed, Nathan Thomas, Caolan Lavery and James Hanson, all loaned out to the clubs this season.
Keeper Long spent this season on loan at AFC Wimbledon, with midfielder Reed part of the relegated Chesterfield side who recently dropped out of the Football League.
Striker Hanson moved to Bury in January, while fellow striker Lavery is currently part of the Rotherham United side in League One play-off action.
Late summer signing Ben Heneghan and attacking midfielder Samir Carruthers have also been made available for transfer.