The national organization of the Alpha Tau Omega fraternity said it shut down the Indiana chapter Thursday following the release of the "highly inappropriate and vulgar" video.
The national chapter's chief executive officer, Wynn Smiley, said the 21-year-old man in the video was an initiated member and the two women were exotic dancers hired by a frat member.
The smartphone video was taken last week during an unauthorized event involving about half the chapter membership, Smiley said in a statement.
"Our investigation revealed that no pledge was compelled to participate," he said. "Regardless, the actions are contrary to the ideals and principles of Alpha Tau Omega and are highly offensive."
The chapter has been closed, its charter revoked, Smiley said.
"The National Fraternity, with strong encouragement from local alumni advisors, investigated the incident and took swift disciplinary action," the statement said.
"The revocation of the charter means the chapter is closed, effective immediately and all chapter activities must cease. The National Fraternity will continue to work closely with Indiana University officials."
In a separate statement, the university praised the national chapter's "swift and strong action" to disband the fraternity.
"The office of the Dean of Students and IU Police Department are prepared to work closely with the national ATO organization to facilitate this action," the university said.
"Indiana University's Office of Student Ethics will continue to investigate this issue as it relates to potential violations of the university code of student conduct."
Earlier, the university and the national chapter had suspended the frat pending an investigation.
The university said the allegations were made Wednesday and involved "credible video evidence" that appeared to show "a purported new chapter member being encouraged to perform a sex act on a female in the presence of several other chapter members."
"Indiana University takes its responsibility to foster a culture of care and respect among the students on its campuses extremely seriously," the statement said.
Mark Land, a university spokesman, said there was "no evidence to suggest at this time that the women in the video are IU Students."
In 2010, the university's Alpha Tau Omega was investigated for hazing and serving alcohol to minors, with 100 members being kicked out, according to the national chapter, CNN affiliate WXIN reported
Alpha Tau Omega has 129 chapters in 35 states, with more than 215,000 members.
Members of Alpha Tau Omega, which was founded in 1865 at the Virginia Military Institute, have included the late politician and football star Jack Kemp, celebrity chef Guy Fieri and playwright Tennessee Williams.
From the University of Houston and Westminster College in Missouri (Sigma Chi), to Furman University in South Carolina and the University of Oklahoma (Sigma Alpha Epsilon), universities and fraternity organizations have been forced to crack down on chapters recently over allegations ranging from hazing and racist chanting to sexual assault.