He will be replaced by the current chief technical officer, Parag Agrawal, Twitter said.
Mr Dorsey, who co-founded Twitter in 2006, has been serving as chief executive of both Twitter and payment firm Square.
"It's finally time for me to leave" he wrote in a statement, saying the company was "ready to move on."
Mr Dorsey said he had "deep" trust in his replacement. "I'm deeply grateful for his skill, heart, and soul. It's his time to lead," he said.
Mr Agrawal joined Twitter in 2011, and has been the firm's head of technology since 2017.