A source at Paramount, the studio behind the film, told Access that Megan, who played star Shia LaBeouf's love interest in the franchise, would not return for the third movie.
The source said that in order to take Shia's character – Samuel James Witwicky — in a new direction, it was better if Sam wasn't tied down to a love interest.
A rep for Megan was not immediately available for comment when contacted by Access Hollywood on Wednesday.
Bay's rep was also not immediatley available for comment when contacted by Access.
The news of Megan's departure from the "Transformers 3" cast comes just months after a dispute emerged between Megan, unnamed "Transformers" crewmembers and even the director.
Megan compared her director to "Hitler" and "Napoleon" during an interview with Britain's Wonderland Magazine's September/October 2009 issue.
"He's like Napoleon and he wants to create this insane, infamous mad-man reputation," Megan said at the time.
"He wants to be like Hitler on his sets, and he is," she continued. "So he's a nightmare to work for but when you get him away from set, and he's not in director mode, I kind of really enjoy his personality because he's so awkward, so hopelessly awkward."
Shortly thereafter, members of the "Transformers" crew posted an open letter on the director's site, condemning the actress for her behavior on set, calling Megan, "the grump of the set," as well as "thankless, classless, graceless" and "unfriendly."
The letter was quickly removed and Michael eventually addressed all the comments a short while later.
"I don't condone the crew letter to Megan. And I don't condone Megan's outlandish quotes," Bay wrote in a blog post on his official Web site. "But her crazy quips are part of her crazy charm. The fact of the matter I still love working with her, and I know we still get along. I even expect more crazy quotes from her on Transformers 3."
"Transformers 3" has reportedly already begun filming.
Related Content from AccessHollywood.com:
VIEW THE PHOTOS: Hollywood's Bisexual Community
VIEW THE PHOTOS: Katy! Zoe! Megan! Oh My! Maxim's 2010 Hot 100: The Top 20
PLAY IT NOW: 2010 Summer Movie Preview
PLAY IT NOW: 2009 Toronto Film Festival: Megan Fox's 'Jennifer's Body' Premiere