Iger, who has led the company since 2005, will stay on as executive chairman in charge of "creative endeavors" until his contract ends on Dec. 31, 2021, the company said.
Bob Chapek, who most recently led the company's theme parks division, will be the new CEO of the Walt Disney Company.
Iger, 69, said he felt it was the "optimal time" for a change a leadership.
Iger joined ABC in 1974 and became chairman of the Disney-owned ABC Group in 1999. In this role, he oversaw the broadcast television network and the company's radio and publishing businesses.
He became CEO of Walt Disney Company in 2005. During his 15-year tenure at the helm, he helped lead Disney's acquisitions of Pixar, Marvel, Lucasfilm and most recently 21st Century Fox.
Iger also oversaw the opening of Disney's first theme park in mainland China in 2016 with the launch of the Shanghai Disney Resort. Most recently, Iger spearheaded the launch of the Disney+ streaming service in late 2019.
"With the successful launch of Disney’s direct-to-consumer businesses and the integration of Twenty-First Century Fox well underway, I believe this is the optimal time to transition to a new CEO," Iger said in a statement Tuesday.
"I have the utmost confidence in Bob and look forward to working closely with him over the next 22 months as he assumes this new role and delves deeper into Disney’s multifaceted global businesses and operations, while I continue to focus on the Company’s creative endeavors," he added.
Iger spoke of his retirement in a Sept. 2019 interview with "Good Morning America," saying he hopes his legacy will be leaving the company in good hands and bringing the world "happiness and entertainment, and a sense of well-being that I think it truly needs."
In the same interview, he said one of the high points of his decades-long career was the release of the record-breaking film "Black Panther" in 2018.
"I think too many people rely on history and experience," Iger said. "It's much more exhilarating and much more important to believe what you believe is right and actually follow those instincts -- follow your heart and gut."
Chapek has been Chairman of Disney Parks, Experiences and Products since 2018, and has been with the company since 1993.
Chapek, in a statement, said he is "honored and humbled to assume the role of CEO of what I truly believe is the greatest company in the world."
The Walt Disney Co. is the parent company of ABC News.