Per Shams Charania of The Athletic and Stadium, Donovan turned down a two-year offer from the Thunder earlier this year, and both parties "agreed to table discussions until the end of the season."
The five-year deal Donovan signed with Oklahoma City in April 2015 expired at the end of this season.
Donovan's departure opens what should be one of the NBA's most desirable coaching jobs. The Thunder have a solid foundation with Shai Gilgeous-Alexander and Co., though Danilo Gallinari will be a free agent this offseason.
Per Marc Stein of the New York Times, the Milwaukee Bucks are expected to pursue a deal for Chris Paul if the Thunder make him available.
General manager Sam Presti has set the Thunder up for the future with as many as 15 first-round draft picks from 2020 to '26 thanks to the Paul George, Russell Westbrook and Jerami Grant trades.
The Thunder made the postseason every year with Donovan as head coach, including an appearance in the Western Conference Finals in his first season. They lost in the first round each of the past four years.
Donovan went 243-157 in five seasons with Oklahoma City. He spent 19 years at the University of Florida from 1996 to 2015, winning two national titles in 2005-06 and 2006-07.