Cage was in talks to take on the role of the Hornet's arch-enemy Mr X, but has walked away from the project following a disagreement with studio bosses over his deal, according to the Hollywood Reporter.
The film has already been delayed twice and it's feared the new setback could cost producers even more time.
The project first fell into trouble when director Stephen Chow quit. He was replaced by Michel Gondry, and Jay Chou filled Chow's role as sidekick Kato.
But the Green Hornet was delayed again last week (beg31Aug09), with movie bosses pushing back the scheduled release date by five months over a string of production delays.
Filming recently began in Los Angeles, but it is not known if Cage's departure will affect the current schedule.
The Green Hornet is set to hit theatres in the U.S. in December 2010.