The department said in a statement on Saturday it was permanently deactivating the Scorpion unit after the police chief spoke with members of Nichols' family, community leaders and other officers.
Video recordings from police body-worn cameras and a camera mounted on a utility pole showed Nichols, a 29-year-old Black man, repeatedly calling "Mum!" as officers kicked, punched and struck him with a baton in his mother's neighbourhood after a January 7 traffic stop.
Nichols was taken to hospital and died of his injuries three days later.
The release of the clips on Friday sparked protests in Memphis and elsewhere and prompted numerous cities to prepare for additional demonstrations on Saturday.
Nichols' family and officials, including US President Joe Biden, have expressed outrage and sorrow but have urged protesters to remain peaceful.
Demonstrations so far have been free of violence.
Five officers involved in the beating, all Black, were charged on Thursday with murder, assault, kidnapping and other charges.
All have been dismissed from the department.
In Memphis on Saturday, angry protesters chanting, "Whose streets? Our streets!" shouted at a police car monitoring the march, with several making obscene gestures.
Some cheered loudly when they learned of the disbandment of Scorpion.
The unit, the Street Crimes Operation to Restore Peace in our Neighbourhoods, was formed in October 2021 to concentrate on crime hot spots.
Critics say such specialised teams can be prone to abusive tactics.
Taken together, the four video clips showed police pummelling Nichols even though he appeared to pose no threat.
The initial traffic stop was for reckless driving, although the police chief has said the cause for the stop has not been substantiated.
Friends and family say Nichols was an affable, talented skateboarder who grew up in Sacramento, California, and moved to Memphis before the COVID-19 pandemic.
The father of a four-year-old child, Nichols worked at FedEx and had recently enrolled in a photography class.
Nate Spates Jr, 42, was part of a circle of friends, including Nichols, who met up at a local Starbucks.
"He liked what he liked, and he marched to the beat of his own drum," Spates said, remembering that Nichols would go to a park called Shelby Farms to watch the sunset when he wasn't working a late shift.
Nichols' death is the latest high-profile example of police using excessive force against Black people and other minorities.
The 2020 murder of George Floyd, a Black man who died after a white Minneapolis officer knelt on his neck for more than nine minutes, galvanised worldwide protests over racial injustice.
