In a letter to the board of directors, Case said he would have liked to serve as chairman for many years to come, but had decided to step down in the best interests of the company.
"This company does not need distractions at this critical time, and given that some shareholders continue to focus their disappointment with the company's post-merger performance on me personally, I have concluded that we should take steps now to avoid the possibility of that effort hindering our ability to pull together as a team," Case wrote in the letter.
He added that progress made in rebuilding the core management team also made this an appropriate time to step down. Case expects to continue to contribute to the company as a director and by continuing to co-chair the company's strategy committee, he said.
Case was the principal architect of the biggest merger in history between two media firms, when America Online and Time Warner announced almost exactly three years ago that they would join forces to create a company worth over $300bn (£187bn).
The stock has fallen around 70% in the two years since the merger was completed, and shareholders have repeatedly criticised Case's lacklustre performance in charge of the merged entity.
A collapse in online advertising revenue, threatened job cuts, allegations of improper accounting and the continued slide of the stock price added up to a bad 2002 for the media giant.
But as late as September, AOL Time Warner said that Case's position at the company was secure.
Case has become the first high-profile media and technology executive to depart in 2003.