Fells caught 55 passes for 653 yards and 11 touchdowns in two seasons with the Texans.
The 34-year-old was entering the final year of his contract. Houston will have to carry $500,000 in dead money but saves $2.3 million against the salary cap for 2021.
Fells' departure potentially opens the door for Jordan Akins to play a more prominent role in the passing game. A third-round pick in 2018, Akins has 90 receptions for 1,046 yards and three scores in 45 career appearances.
Speaking with the Houston Chronicle's Aaron Wilson, he explained how he feels confident heading into next season based on the experience he has gained so far.
"The more comfortable you get in the NFL, the faster you can play," Akins said. "After you adjust to the speed of the game, you can relax and play better. Now that I've got the speed down and the terminology, I have the experience. I'm very excited for the upcoming season, and I'm ready to show my talent."
According to Tom Pelissero of NFL Network, the New England Patriots are trading Ryan Izzo to Houston for a 2022 seventh-round pick. Given Izzo's limited production to date (19 receptions, 313 yards, one touchdown), Akins still figures to be the starting tight end.
Fells, meanwhile, should land on his feet elsewhere. Because of his age, he might have to settle for a one-year deal, but his touchdown totals in 2019 and 2020 speak to how effective he is in the red zone.