The controversial ex-Newcastle man has been without a club since being released by Southend last January but spent the last few weeks training with the League One side.
Manager Karl Robinson told the Oxford Mail: “Nile Ranger is not someone we want to take up the option on. We had a conversation and as a football club we felt it was right we looked more in January.
“I want people to understand that since he has been here he has been impeccably behaved in his conduct and his time-keeping. It's hard because he proved to us that he was ready to be given an opportunity and I do believe in giving people a chance."