McLaughlin, whose latest City contract expired at the start of this month, had still been training with club up until the start of this week but is now expected to join a Sky Bet League 2 side in the next day or so.
McLaughlin, who have featured in all three of City's pre-season friendlies so far this summer, leaves the club after six years with the Bantams.
The Scottish-born 'keeper's last official act as a Bantam came when he kept goal for the first hour of City's 4-0 friendly win over Irish club Shelbourne last Saturday.
Joining the club at start of the 2008/09 season, McLaughlin had been City's longest-serving player until his departure this Tuesday. That mantle now moves onto James Hanson, who came to the club ahead of the 2009/10 campaign.
Commenting on McLaughlin's departure, Bantams boss Phil Parkinson said: "Jon has been a great servant to the club, and we would have ideally liked to see him stay, but financial constraints mean it hasn't been possible to strike a deal that is right for both parties.
"Jon leaves with our best wishes."
McLaughlin made 137 appearances in total for City's first team, playing under previous managers Stuart McCall, Peter Taylor and Peter Jackson, as well as Parkinson, in the process.
McLaughlin's departure from the club comes a day after City secured a season-long loan deal for Sunderland shot-stopper Jordan Pickford.
The football club would like to give a massive thank you to Jon for all his years of loyal service to Bradford City and wish him all the very best at his new club.