Theodore McCarrick is the most high-profile 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.
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 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.
The Vatican said Pope Francis had ruled Mr McCarrick's expulsion from the clergy as definitive, and would not allow any further appeals against the decision.