The occasion was marked with a ceremonial parade at RAF Waddington, Lincoln, with the Squadron Standard lodged at RAF Cranwell.
It comes after the Sentinel carried out its last operational flight in February.
V(AC) Squadron had been operating the aircraft as part of the Intelligence, Surveillance, Target Acquisition and Reconnaissance (ISTAR) Force based at Waddington.
Group Captain Steve Kilvington, RAF Waddington Station Commander, said it had been a "privilege to work with the men and women of V(AC) Squadron".
"Whilst the current situation means that we are not able to give them quite the send-off we would wish, everyone should feel immensely proud of what they have all achieved," he said.
First formed in 1913, the V(AC) Squadron has a rich history – including service in both the First and Second World Wars and the Gulf War.
The squadron has also operated aircraft such as the Avro 504, Lightning F6 and Tornado F3 and has been awarded battle honours from all over the world.
In recent years, V(AC) Squadron began operating the Sentinel R1 and has been committed to multiple operations.
This includes Operation Shader, the UK contribution to the US-led mission against so-called Islamic State, and Operation Ellamy in Libya which saw the aircraft achieve its longest flight of 12 hours and 30 minutes.
V(AC) Squadron aircraft have also been used to directly assist civilian authorities in the UK.
Gp Capt Kilvington said V(AC) Squadron "has delivered exceptional support to numerous operations across the globe".
"Whether tackling insurgency in the Middle East or supporting NATO on Europe's flanks, the squadron's output has truly epitomised the Whole Force concept," he said.
"Whether military, civilian or contractor, everyone has performed time and again to assure delivery of vital defence outputs."
As the squadron disbands, personnel will be posted to new roles throughout the RAF, the Air Force said.
Cover image: A ceremonial parade at RAF Waddington was held to mark the occasion (Picture: MOD).