Dormady made the announcement Monday on Twitter.
"I would like to thank everyone at the University of Tennessee program for the opportunity over these past three years to play the game I love at the highest level of college football as part of Vol Nation," he tweeted. "After weeks of reflection, I've decided to complete my degree from Tennessee and transfer for my final year of eligibility.”
As a graduate transfer, the native of Boerne, Texas, would be eligible to play immediately.
The 6-foot-4 Dormady started Tennessee’s first five games this past season. He completed 55.5 percent of his passes for 925 yards with six touchdowns and six interceptions.
He was replaced by Jarrett Guarantano midway through the year and later underwent season-ending shoulder surgery.
"I am excited as I look to the future and toward a new opportunity," Dormady continued. "I am making great progress every day with the help of my family, my friends and doctors. I want to thank everyone for their support through rehab. ...
"To my teammates and coaches, I want to express gratitude for all that you have done for me on and off the field and I wish the program the greatest of success in the future. Go Vols"
Dormady’s decision leaves Guarantano, Will McBride and incoming freshman JT Shrout as Tennessee’s scholarship quarterbacks.