George Hamilton, who was appointed chief constable in June 2014, said he informed the Policing Board of his intention to leave the service in June.
A police officer for nearly 34 years, he said the greatest privilege of his career “had been to serve as chief constable”.
He said NI was a “much more peaceful and progressive society” than it was when he began his police career.
The announcement has come as a surprise to the chief constable’s senior colleagues and members of the Northern Ireland Policing Board.
He had been expected to accept a three-year contract extension that was offered when he met the board last week.
His decision to decline the offer followed discussions with his wife and four children over the Christmas period.
Sources say George Hamilton broke the news to his senior command team this morning and then informed the board chairman, Anne Connolly.
He told them he is retiring to spend more time with his family.
No current member of the PSNI command team can apply to succeed Mr Hamilton as chief constable.
The current eligibility criteria states that an applicant must have completed a national senior command course and served at least two years in a police force outside Northern Ireland.
After joining the Royal Ulster Constabulary (RUC) – the predecessor of the Police Service of Northern Ireland (PSNI) – in 1985, he worked in a number of roles including a stint as assistant chief constable of Strathclyde Police.
“I am privileged and humbled to have led the dedicated officers and staff of the PSNI and to have worked in partnership with so many people committed to public service in Northern Ireland and beyond,” said Mr Hamilton.
He said that there were challenges in the months and years ahead “but we have overcome greater challenges in the past and there is nothing that cannot be achieved if the police, our partners and the community continue to work together”.
Anne Connolly says the board needs to put in place a process for the appointment of a new chief constable
Anne Connolly, chairwoman of the Northern Ireland Policing Board, said the board respected Mr Hamilton’s decision not to accept a three-year contract extension last week.
She said recruitment for a new chief constable would be considered at a meeting on 6 February.
The Policing Board was established as part of policing reforms after the 1998 Good Friday Agreement, which helped bring about the end of the Troubles in Northern Ireland.
George Hamilton’s police CV
1985: Joined Royal Ulster Constabulary (RUC)
1994: Promoted to RUC inspector and seconded to England for development programmes
1997: Returned to uniform patrol in NI and subsequently worked on Patten policing reforms
2002: Worked as a senior detective in PSNI’s Criminal Investigation Department (CID)
2007: Appointed district commander for south and east Belfast
2009: Joined Strathclyde Police as assistant chief constable
2011: Returned to NI as PSNI assistant chief constable
2014: Appointed PSNI’s fourth chief constable
With many thanks to: BBCNI for the original story