Giro organizers said the 30-year-old captain of Saeco, winner of Thursday's uphill stage at Campitello Matese and third-place overall, agreed to his withdraw with team officials.
Simoni had learned Wednesday that he had tested positive for cocaine metabolites at a random doping test carried out in April. He has said that medication used during dental treatment was to blame for the non-negative result on the urine sample.
With further tests only scheduled after the end of the Giro on June 2, his presence in the race could have challenged the credibility and prestige of Italy's most popular cycling competition, organizers said.
Giro organizers reportedly increased pressure on Simoni and Saeco after prosecutors in Trento opened an investigation into the case and three police officers questioned Simoni at his hotel Thursday night.
"It's our decision, taken following the events of the last few days," Saeco team manager Claudio Corti said. "We believe it was the right decision."
In a later statement Saeco said Simoni was withdrawn from the race in view of the "situation of strong suspicions and doubt ... and in respect of the Giro and its organizers."
Giro director Carmine Castellano said he did not put any undue pressure on Saeco.
"We realized we could not continue this way and decided to talk to the teams," Castellano said. "It was a frank discussion between responsible people .... There were no threats ... but the interests of the Giro come first."
"The team took the decision. It was a painful decision," the Giro director said. "Those left ... have the right to make it to the end of the race."
Simoni's withdrawal, the suspension from the Giro of top rider Stefano Garzelli and the detention of three Giro cyclists in doping-related cases had already rocked the race.
Garzelli, a Giro winner in 2000 and the race leader for four days this year, was sent home Tuesday night after testing positive for a banned diuretic.
Organizers said Roberto Sgambelluri, a teammate of Marco Pantani with the Mercatone Uno team, did not start in Friday's stage on his team decision, after failing a doping test on the eve of the Giro start in Groningen, Netherlands, on May 11.
Garzelli had been tested after the second Giro stage at Liegi, Belgium.
Simoni ranked third overall, 3:15 minutes behind German leader Jens Heppner, after winning Thursday's stage ahead of fellow-Italian Francesco Casagrande.
He said after the victory in the Apennine mountains that he wanted to prove his innocence and win the Giro. Instead, Friday morning he headed home.
Simoni had been tested by WADA, the world anti-doping agency, on the eve of the Giro del Trentino on April 24.
On Thursday his dentist confirmed that Simoni underwent treatment and received anesthetic hours before the anti-doping tests.
Both Garzelli and Simoni have repeatedly claimed they have not taken any banned substance.
Garzelli was suspended after results of second tests while Simoni pulled out with second tests still to be carried out at a laboratory in Lausanne, Switzerland.
With Garzelli and Simoni out of the race, Casagrande, of the Fassa Bortolo team, emerged as the top favorite to win the 20-stage competition.
Casagrande ended Friday's stage, 200 kilometers (124 miles) of hilly course from Campobasso to Chieti, in southern Italy, 2:58 minutes behind Heppner.
Casagrande is a good climber and some of the toughest, uphill Giro stages must still be raced.