The 21-year-old Estonian was suspended by Red Bull last week pending an investigation into the language he used. Vips had apologized for his actions.
"Following its investigation into an online incident involving Juri Vips, Oracle Red Bull Racing has terminated Juri's contract as its test and reserve driver,” Red Bull tweeted. “The team does not condone any form of racism.”
Vips stepped in for Red Bull’s F1 driver Sergio Pérez in the first practice session for the Spanish Grand Prix last month and finished last.
Vips has three podium finishes this season for the Hitech Grand Prix team in the F2 championship.
The case has similarities to that of Kyle Larson, the 2021 NASCAR Cup Series champion who was suspended in 2020 for using a racial slur while playing a video game. He was dropped by his sponsors and fired by Chip Ganassi Racing, but spent time immersed in diversity programs before returning.