The two were among 10 players cut Friday, a day after the Bills closed the preseason with a 23-0 loss to the Detroit Lions.
Moorman is a 13-year NFL veteran who spent 12 seasons in Buffalo. After being cut by the team in 2012, he re-signed with the Bills last October. He struggled this preseason, averaging 40.25 yards, and shanked several attempts against the Lions.
Palmer had an even worse outing against Detroit in his Bills debut. The fifth-year player went 9 of 22 for 73 yards and three interceptions after being cut by the Bears last weekend and signed by Buffalo on Tuesday.
The Bills (1-4) also cut cornerbacks Kamaal McIlwain and Sam Miller, linebacker Xavius Boyd, defensive tackle Landon Cohen, tight end Dominique Jones, fullback Evan Rodriguez, receiver Naaman Roosevelt and center Jared Wheeler.
Buffalo placed three players on reserve/injured: tight end Tony Moeaki and cornerbacks Mario Butler and Bobby Felder.
Moeaki has been hampered by a series of injuries that have limited him throughout the preseason. Buffalo signed the fourth-year player in December after he reached an injury settlement with the Kansas City Chiefs.
The moves were made a day before NFL teams are required to establish their 53-player regular-season roster.
Buffalo is now carrying 61 players, including linebacker Nigel Bradham, who won't count against the roster in Week 1. Bradham was suspended by the NFL from playing in the season-opener at Chicago on Sept. 7 for violating the league's substance abuse policy.
The Bills still have a logjam at receiver, with 2012 third-round draft pick T.J. Graham in jeopardy of being the odd-man out. Veteran offensive linemen Kraig Urbik and Doug Legursky are also candidates to be cut.
Later in the day, the Bills signed long-snapper Garrison Sanborn to a three-year contract extension, locking up the sixth-year player through the 2017 season.
Moorman anticipated his release by posting a ''Thank You'' letter on the team's website shortly after the cuts were announced.
''Today is certainly bittersweet. But I can truly tell you that wherever the road takes us, we will always consider ourselves members of the Buffalo Bills family,'' Moorman wrote on behalf of himself and his wife, Amber. ''It may be the end of a career, but it's certainly not the end of a friendship.''
Moorman became a fan-favorite because of his play off the field and involvement in charitable organizations in Buffalo. He holds team records with 259 punts inside the 20 and 923 total punts, and ranks second in averaging 43.7 gross yards per punt.
The Bills claimed punter Jordan Gay on Tuesday.
Buffalo's backup quarterback spot remains unsettled. Palmer was signed after the Bills cut Thad Lewis, who went 2-3 in place of injured rookie starter EJ Manuel last season.
That leaves Jeff Tuel as Manuel's only backup, though the Bills haven't ruled out adding another veteran before the season begins.
AP NFL website: www.pro32.ap.org and www.twitter.com/AP-NFL