The BBC said the allegation against Torode involved "an extremely offensive racist term being used in the workplace", and the claim was upheld by an independent investigation led by a law firm.
"We will not tolerate racist language of any kind," the corporation said on Tuesday.
"John Torode's contract on MasterChef will not be renewed."
Torode, 59, said he had "no recollection of the incident" and was "shocked and saddened" by the allegation.
The Australia-born presenter started hosting MasterChef in 2005 along with Wallace, 60, who was sacked after a report found that dozens of allegations made against him by multiple women were substantiated.
It said the majority of the claims related to "inappropriate sexual language and humour."
The claims have cast a shadow over the BBC and MasterChef, one of the broadcaster's most popular and long-running competition shows.
The program has spawned numerous spin-offs and adaptations in other countries, including Australia.
The latest controversy has again raised questions about the BBC's handling of misconduct cases.
Director-general Tim Davie said the broadcaster's leadership would not tolerate behaviour that is "not in line with our values" following the report on Wallace.
He also said he believed MasterChef could survive and prosper despite the controversies.
"I think a great program that's loved by audiences is much bigger than individuals," he said.
