Folau has scored 37 tries in 73 games for Australia
Rugby Australia and the New South Wales Rugby Union say they intend to terminate Israel Folau's contract after a social media post by the full-back in which he said "hell awaits" gay people.
Folau, 30, has 73 caps and was expected to play at this year's World Cup.
"He does not speak for the game with his recent social media posts," the governing bodies said.
"In the absence of compelling mitigating factors, it is our intention to terminate his contract."
Rugby Australia and the NSW Rugby Union, which is responsible for Super Rugby side NSW Waratahs, said they have made "repeated attempts" to contact Folau and he has failed to get in touch with either organisation.
"Israel has failed to understand that the expectation of him as a Rugby Australia and NSW Waratahs employee is that he cannot share material on social media that condemns, vilifies or discriminates against people on the basis of their sexuality," the governing bodies said in a statement.
"As a code we have made it clear to Israel formally and repeatedly that any social media posts or commentary that is in any way disrespectful to people because of their sexuality will result in disciplinary action."
Australia's sponsor Qantas, whose chief executive Alan Joyce is openly gay, said Folau's post was "really disappointing".
"These comments clearly don't reflect the spirit of inclusion and diversity that we support," the airline said.
Folau, who signed a four-year deal with the Waratahs in March and had a deal with Rugby Australia until 2022, escaped punishment for similar comments last year, with Rugby Australia saying it accepted - but did not support - his "position".
On Wednesday, he posted on Instagram that "drunks, homosexuals, adulterers, liars, fornicators, thieves, atheists and idolaters" should "repent" because "only Jesus saves", and made similar remarks on Twitter.
He sent a tweet criticising the Tasmanian parliament, which has become the first Australian state to make it legally optional to list gender on birth certificates.
