The Republic Of Ireland international has been at St Andrews for two years since joining them from Everton.
Speaking to the BBC, Carsley who has a son at Coventry City's Academy said: "I have had two fantastic years at the Blues and I would like to thank the management and the fans for all their support.
"I came to the club to help them back into the Premier League and then to stay there", he added. "I will now look to help another club achieve success and I relish another challenge."