He says he wants to focus on global health and development, education and tackling climate change.
One of the world's richest men, Mr Gates, 65, has also left the board of Warren Buffett's massive holding company, Berkshire Hathaway.
Mr Gates stepped down from his day-to-day role running Microsoft in 2008.
Announcing his latest move, Mr Gates said the company would "always be an important part of my life's work" and he would continue to be engaged with its leadership.
But he said: "I am looking forward to this next phase as an opportunity to maintain the friendships and partnerships that have meant the most to me, continue to contribute to two companies of which I am incredibly proud, and effectively prioritise my commitment to addressing some of the world's toughest challenges."
Mr Gates is listed by Forbes as the world's second richest man after Amazon founder Jeff Bezos, and is worth $103.6bn (£84.4bn).
He made his fortune developing software for the personal computer.