Yahoo CEO Jerry Yang is stepping as soon as the struggling company finds a replacement.
Yahoo's decision to replace Yang comes less than 18 months after giving him the lead job.
A number of shareholders criticised Yang for not striking a deal with Microsoft when Redmond came in to buy the company earlier this year.
Microsoft had offered $33 a share for Yahoo. Yesterday, Yahoo's share price was under $11.
A proposed web ad revenue sharing deal with Google has also recently collapsed after regulators threatened to scupper it over anti-trust concerns.
Yang will be staying on as a board member at Yahoo, but will be taking a more back seat role.
Yahoo has hired aptly named executive search firm Heidrick & Struggles to hunt for Yang's replacement.