A special caucus meeting will be called on 12 December, when a new leader will be decided upon.
He said it had been a privilege to serve the people of Helensville, and he will stay in Parliament long enough to avoid a by-election.
Mr Key made the announcement at Parliament today.
He told his Cabinet and caucus colleagues this morning that he did not intend to stay on for a fourth term as leader, he said.
"To me, this feels like the right time to go."
