Brailsford, 50, is acknowledged as the catalyst for Britain's incredible medal haul from major championships since rising to the role of performance director in 2003 with stunning performances at both the 2008 and 2012 Olympics.
Britain won a combined 16 gold medals in Beijing and London.
"Sir Dave Brailsford will step down as Performance Director in order to concentrate full-time on his role as Team Principal at Team Sky," a statement said.
"Dave will continue to be available to the team for help and advice and will support the Great Britain Cycling Team road programme through the strong links between Team Sky and British Cycling."
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With Brailsford at the helm, Team Sky have enjoyed incredible success, with Britons Bradley Wiggins and Chris Froome winning the last two editions of the Tour de France.
British Cycling said Shane Sutton had been appointed Technical Director with responsibility for rider performance as the focus switches to the Rio Games in 2016.
Chief executive Ian Drake said Brailsford's work had helped transform the team.
"Firstly, I want to thank Dave Brailsford for his enormous contribution to British Cycling - the organisation he leaves behind is transformed from the one we both joined in 1998," he said.
"In that time, the Great Britain Cycling Team has not only set the standard by which British sporting success is judged but also inspired millions of people to get active through cycling."
(Reporting by Martyn Herman; Editing by John O'Brien)
