Dorsey, who also is chief executive of payments company Square, came under pressure in 2020 from Elliott Management amid concerns he had spread himself too thin by running both companies.
"I've decided to leave Twitter because I believe the company is ready to move on from its founders," Dorsey said in a statement.
The company said Twitter's chief technical officer Parag Agrawal will replace Dorsey in the top post.
"My trust in Parag as Twitter's CEO is deep... It's his time to lead," Dorsey said.
Dorsey will remain a member of the board until his term expires at the 2022 meeting of stockholders.
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