Delhi have chosen Sri Lankan batsman Mahela Jayawardene as their new leader.
Sehwag, who was the skipper of the team in four editions of Indian Premier League (IPL), "sought to be relieved of captaincy", GMR Sports Head (Cricket) and Delhi Daredevils Team Mentor TA Sekar said on the team's official website.
"Viru told us a few months ago that he wanted to bat freely and suggested that we make Mahela the captain of the side," Sekar said.
Delhi are in Group A with Kolkata Knight Riders, Perth Scorchers, Titans and a qualifier.
The Qualifier will start on October 9 before the Group Stage kicks off on October 13. The Final will be played on October 23 in Johannesburg.
Delhi Daredevils squad for CLT20 2012: Aavishkar Salvi (replacement for Varun Aaron), Ajit Agarkar, Unmukt Chand, Mahela Jayawardene (captain), Morne Morkel, Pawan Negi, Naman Ojha, Irfan Pathan, Kevin Pietersen, Venugopal Rao, Andre Russell, Virender Sehwag, Ross Taylor, David Warner, Umesh Yadav