Less than two hours after the arrest, the Patriots announced they were releasing Hernandez.
"A young man was murdered last week and we extend our sympathies to the family and friends who mourn his loss. Words cannot express the disappointment we feel knowing that one of our players was arrested as a result of this investigation. We realize that law enforcement investigations into this matter are ongoing. We support their efforts and respect the process. At this time, we believe this transaction is simply the right thing to do," a statement from the team read.
The Patriots drafted Hernandez in 2010. Last summer, the team gave Hernandez a five-year contract that is worth $40 million, including a signing bonus of $12.5 million.
The body of Lloyd, 27, was found June 17 about one mile away from the tight end's North Attleborough home. The death was ruled a homicide; Hernandez has not been named as a suspect in the case.
The investigation also cost Hernandez his endorsement contract with CytoSport, which makes Muscle Milk and other supplements for athletes, last week.
A call to Hernandez's attorney was not immediately returned.
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Lloyd has been described as having unspecified ties to Hernandez, friends and family told NBC affiliate in Boston WHDH.
"My son is a wonderful child. He's a family guy, he has not done anything to hurt anyone," Lloyd's mother Ursula Ward said. "First and foremost I would like to thank the person that found my son. I would like to say God put him in the right place at the right time."
Separately, Hernandez is also embroiled in a civil lawsuit by a Connecticut man, Alexander Bradley, who alleges Hernandez shot him in the eye after the two left a Miami strip club in February.
According to a Palm Beach County police report, the case was abandoned because Bradley refused to cooperate with authorities.
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—By Elizabeth Chuck, NBC News. The Associated Press contributed reporting.