Theodore McCarrick is the most senior Catholic figure to be dismissed from the priesthood in modern times.
US Church officials said allegations he had sexually assaulted a teenager five decades ago were credible.
Mr McCarrick, 88, had previously resigned but said he had “no recollection” of the alleged abuse.
“No bishop, no matter how influential, is above the law of the Church,” Cardinal Daniel DiNardo, president of the United States Conference of Catholic Bishops said in a statement.
“For all those McCarrick abused, I pray this judgment will be one small step, among many, toward healing.”
The alleged abuses may have taken place too long ago for criminal charges to be filed because of the statute of limitations.
Mr McCarrick was the archbishop of Washington DC from 2001 to 2006. Since his resignation last year from the College of Cardinals, he has been living in seclusion in a monastery in Kansas.
He was the first person to resign as a cardinal since 1927.
He is among hundreds of members of the clergy accused of sexually abusing children over several decades and his dismissal comes days before the Vatican hosts a summit on preventing child abuse.