Renault said the departure with Palmer was by 'mutual consent'. Sainz - already confirmed for them for 2018 - will now drive for the team for the remaining four races of 2017, starting at Austin on October 22.
Palmer said he would look back with pride on his time with the team, which will grow to 35 races starts at Suzuka and includes a career-best finish of sixth place three weeks ago in Singapore.
"The Japanese Grand Prix will be my last race for Renault," the Briton confirmed. "It’s been an extremely challenging season and I’ve been through a lot in the last three years, but it’s been a tremendous journey overall with the team.
"I can look back proudly at the performance in the second half of last season, my first point in Malaysia and of course reaching a career high of sixth place in Singapore this year. I wish the team all the best for the future.
"My immediate focus is now on achieving the best possible result in the Japanese GP, and then I can assess my options for the future."
Cyril Abiteboul, Renault Sport Racing Managing Director, added: "I would like to thank Jolyon for his commitment to the team and his professionalism.
"Since Renault’s return to Formula 1, Jolyon has been highly dedicated in an evolving environment. He has shown great personal qualities and we wish him all the best in his future career."
As a result of the switch, Toro Rosso have confirmed that Daniil Kvyat will be brought back in alongside Pierre Gasly for the US race. Sainz, meanwhile, paid tribute to the Italian team after being released 'earlier than originally planned'.
"First of all I would like to thank Toro Rosso and Red Bull for allowing me the possibility of finishing this season with Renault Sport Racing," Sainz said.
"More specifically, I really want to thank all my engineers and mechanics for their support and tremendous work throughout these years. Toro Rosso is made up of a fantastic group of people and I wish them only the best for the future.
"On my side, I will definitely do my very best in tomorrow’s race… this would be the best possible send-off! Additionally, competing in these last four races with Renault gives me a good opportunity to get to know the team and the car earlier than expected. I am looking forward to start working with them."
Toro Rosso team principal Franz Tost said he will now look forward to taking on Sainz as a rival rather than a protege.
"I would like to thank Carlos for all his efforts over almost three Formula 1 seasons," Tost said.
"He always did his very best, demonstrating an excellent attitude and commitment to his work, which helped him and us to get some great results during that time. Therefore, on behalf of everyone at Toro Rosso, I wish him all the very best with his new team. We look forward to beating him on track!"