The elderly First Minister, who will remain as an MP in the Westminster parliament and Assembly member, will quit after a high-profile investment conference in Belfast.
It comes after his son was forced to resign from his Junior Minister position over a financial scandal two weeks ago.
Paisley has dominated Ulster unionism since the 1960s. He will turn 82 next month.
The unionist leader said: "I came to this decision a few weeks ago when I was thinking very much about the conference and what was going to come after the conference. I thought that it is a marker, a very big marker and it would be a very appropriate time for me to bow out".
Mr Paisley's career, in which religion and politics always intertwined, has spanned five decades. Regarded for much of his career by nationalists as an intransigent sectarian bigot, he capitalised on his appeal to unionist extremists and ultimately succeeded where his political rivals failed. In the end, and to the chagrin of many of his hard-line supporters, he formed a devolved power-sharing executive with Sinn Fein's Martin McGuinness as his Deputy First Minister.
His decision to resign follows discussions by his fellow ministers in the executive. DUP deputy leader and Stormont Finance Minister Peter Robinson is already the early favourite to succeed Mr Paisley, with Economy Minister Nigel Dodds likely to challenge for the leadership.
Announcing his resignation, Mr Paisley would not be drawn on who would succeed him.
"This is not the Church of Rome", he said. "This is not Apostolic succession and I have no right to say who will succeed me".
"The person will succeed me when the mark is on the paper and the ballot is cast. Whoever that will be will have my support and encouragement and if he wants to take my advice, he will get that advice if he asks for it, but I will not be sitting like Putin in Russia saying to the president: This is the way you have to go".
"When I make a break, it is a break", he added.
The question that is Peter Robinson will manage the heritage of Paisley’s bigot attitude?

© Irish Republican News