Indiana and Kelvin Sampson reached a $750,000 settlement Friday, enabling the coach and the school to part ways immediately, the university said in a statement released Friday night.
Under the agreement, Sampson could not sue the university. An announcement was expected later Friday.
"I am very sorry to see our relationship with Coach Sampson end this way, but we have to focus on doing what's best for the long-term interests of IU and its men's basketball team," athletic director Rick Greenspan said in the statement.
The deal calls for Sampson to be paid $750,000, $550,000 of which is being provided by an anonymous donor, the relase said. The remainder will come from athletic department funds. Sampson has agreed he will not file a wrongful termination lawsuit against Indiana.
Signs of a coaching switch were evident at the team's practice Friday afternoon.
Assistant coach Dan Dakich, who will be named interim coach, directed the workout but was short-handed. Senior captain D.J. White, Armon Bassett, Jordan Crawford, Jamarcus Ellis, DeAndre Thomas and Brandon McGee were not on the court.
The Hoosiers were scheduled to depart for Evanston, Ill., on Saturday for IU's Big Ten game that night at Northwestern.