Ms Bishop had faced months of speculation about her future after losing an internal party ballot to become prime minister last August. The vote handed the job to Scott Morrison.
The upheaval also ended her 11-year tenure as Liberal Party deputy leader.
Ms Bishop said she would not contest the next election, expected in May.
She said it had been an "immense honour" to serve as the Liberal Party's first female deputy leader, as well as her Perth electorate of Curtin for two decades.
"I am also proud of the fact that I am the first woman to contest a leadership ballot of the Liberal Party in its 75-year history," she told the parliament on Thursday.
Mr Morrison thanked Ms Bishop for her "tremendous service", noting "the dignity and grace that she has always demonstrated in every single role she has held".