Champion swimmer Michael Phelps has been suspended from competition for three months by USA Swimming. It is also withdrawing its financial support to him.
Meantime sponsor Kellogg said they would not renew their contract with the swimmer when it expires at the end of the month.
All this in the wake of his indirect admission that he smoked marijuana.
The 23-year-old, who won eight gold medals at the Beijing Olympics last year, issued a public apology after the News of the World published a photo of him inhaling from the type of glass pipe used to smoke cannabis.
The USA swimming statement read: 'USA Swimming has reprimanded Michael Phelps under its Code of Conduct by withdrawing financial support and the eligibility to compete for a period of three months effective today, February 5, 2009.
'This is not a situation where any anti-doping rule was violated, but we decided to send a strong message to Michael because he disappointed so many people, particularly the hundreds of thousands of USA Swimming member kids who look up to him as a role model and a hero.
'Michael has voluntarily accepted this reprimand and has committed to earn back our trust.'
Phelps' suspension runs out in early May meaning he will be eligible for the World Championship trials in July if he decides to defend the seven titles he won in Melbourne in 2007.
Cereal-maker Kellogg also released a statement, saying: 'Michael's most recent behaviour is not consistent with the image of Kellogg.
'His contract expires at the end of February, and we have made a decision not to extend his contract.'
However, other sponsors such as Speedo, Visa and Omega watches have all stood by the swimmer.
The punishment was announced on the same day the 14-time Olympic champion made his first public comments since the publication of the photograph by News of the World.
Phelps told the Baltimore Sun the intense public scrutiny has him contemplating whether to compete in London 2012.
It is the latest public embarrassment for the Olympic star, who was sentenced to probation for drink-driving in 2004.
Phelps' coach, Bob Bowman, told the Baltimore Sun: 'I think it sends a message to Michael, and we're certainly going to abide by it.
'He's eager to be back in training, and looking to move forward.'
Marc Schubert, national team head coach and general manager, added: 'The whole situation has obviously been disappointing, but Michael is very disapointed in himself. 'It's been a real tough time for Michael.
'He's kind of thrown himself into his swimming lately, which has been a good thing because I think he has his friends on his swim team, and I think he's been introspective about the situation. He's taken a good look at himsel and realises his mistake.'
Meanwhile, Phelps' management company, Octagon, said the swimmer accepts the decisions of USA Swimming.
'Michael accepts these decisions and understands their point of view. He feels bad he let anyone down.
'He's also encouraged by the thousands of comments he's received from his fans and the support from his many sponsors. He intends to work hard to regain everyone's trust.'
Now Michael Phelps could be facing drugs charges if a South Carolina investigation proves he actually smoked cannabis.
Leon Lott, sheriff of the Richland County in South Carolina where Phelps was pictured with the pipe, has revealed the sportsman could face criminal charges.
He told a South Carolina paper that he would charge Phelps if he could prove he smoked marijuana in his county.
Phelps also had to tell his mother about his transgression - admitting that doing so 'definitely wasn't easy.'