General manager Daryl Morey said on Tuesday the two sides have had "multiple conversations" and the Rockets "have agreed to look into trade opportunities and have granted him an indefinite leave from team activities."
McGrady was unhappy with his playing time in six games since returning from offseason knee surgery and left the team before two road games over the weekend.
The seven-time All-Star is due to make about $23 million this season in the last year of his contract.
McGrady played a total of 46 minutes in six games this season, his first action since undergoing microfracture surgery on his left knee on Feb. 24.
While McGrady had been insisting since training camp that he was ready to play again, the Rockets were hesitant to return him to the regular rotation.
Houston coach Rick Adelman said on Tuesdays that McGrady never progressed to the point where he was ready to increase his minutes.
"He's been hurt for over a year," Adelman said. "The thing that people want to write about is who he was two years ago, and he isn't that right now. We have a whole team here and it's not just about what he wants or what he was going to want, or what was going to happen. It was about what can he do to help us win, and that was the bottom line to me."
In February, doctors said McGrady would need up to 12 months to fully heal. Adelman said he stuck to that timeline all along, believing McGrady still needed a month or more. He said McGrady wanted to accelerate that timeline, and that led to the impasse over playing time.
The Rockets acquired McGrady in June 2004, hoping that he would team with Yao Ming and return the team to prominence, but his five-season tenure was marked more by injuries than team success.
With McGrady lost in the first round of the playoffs in 2005, 2007 and '08 and the blame for the failures -- whether deserved or not -- increasingly fell on McGrady, who's winless in seven playoff series.
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