School officials said they believe Te'o was tricked into an online relationship with a woman whose "death" was then faked by the perpetrators of the hoax.
In an interview with ESPN in October, the Heisman Trophy finalist described the woman, Lennay Kekua, as "the most beautiful girl I've ever met," even though he said the two had only talked online and on the phone.
Te'o used Kekua's supposed death, which also came on the same day that his grandmother died, as his inspiration, leading the Fighting Irish back to the national championship game for the first time since 1988.
"This is incredibly embarrassing to talk about, but over an extended period of time, I developed an emotional relationship with a woman I met online," Te'o said in a statement. "We maintained what I thought to be an authentic relationship by communicating frequently online and on the phone, and I grew to care deeply about her."
The hoax was disclosed hours after Deadspin.com posted a lengthy story, saying it could find no record that Kekua ever existed.
"We called all the mortuaries and funeral homes in Carson, Calif., where several sources have reported that she had been buried. They had no information on it, and this sort of really told us that there's something really weird going on here," said Timothy Burke with Deadspin.com.
Deadspin.com speculated that the person responsible for setting up the fake profiles was a man from the Antelope Valley. The story suggests that Te'o may have known about the hoax, but the football player denies he had any knowledge of it.
"To realize that I was the victim of what was apparently someone's sick joke and constant lies was, and is, painful and humiliating," said Te'o. "In retrospect, I obviously should have been much more cautious. If anything good comes of this, I hope it is that others will be far more guarded when they engage with people online than I was."
Notre Dame athletic director Jack Swarbrick said that Te'o told coaches on Dec. 26 that he had received a call from Kekua's phone number while at an awards ceremony during the first week of December. When he answered the phone, a person who sounded like Kekua told him that she was in fact not dead. Swarbrick said the school hired investigators to look into the hoax.
"This was a very elaborate, very sophisticated hoax perpetrated for reasons we can't fully understand," Swarbrick said. "The single most trusting human being I've ever met will never be able to trust in the same way again in his life."
Swarbrick cited the documentary "Catfish" in trying to explain how Te'o was duped. The HBO documentary film follows Nev Schulman and his relationship with a girlfriend he never met named Megan Faccio. ABC News has learned Schulman was contacted for guidance by the girl in a photo who Te'o believed was Kekua.
The Associated Press contributed to this report.