"A number of allegations have surfaced about MPs in recent days, including some about my previous conduct. Many of these have been false but I accept that in the past I have fallen below the high standards that we require of the armed forces that I have the honour to represent," Fallon wrote in a letter to Prime Minister Theresa May.
"I have reflected on my position and I am therefore resigning as Defence Secretary," he said, adding that he would continue as a member of parliament.
Fallon had apologised this week for putting his hand on the knee of a journalist, Julia Hartley-Brewer, in 2002, but he was not being investigated over the incident.
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Hartley-Brewer said she was "incredibly shocked" by Fallon's resignation and did not think his decision was based solely on the 2002 incident.
"I'm assuming there are more allegations to come," she told Sky News. "I doubt very much it's because of my knee and if it is I think that's really mad and absurd and crazy."
"I think he's actually been a very good defence secretary and I'm sad that a leading member of the cabinet has fallen now when the government is on very shaky ground," she said.
She added that while there had been "rumours doing the rounds for some time" over sexual harassment within politics, no one had contacted her directly about specific concerns.
Government under pressure
May has called for rules on MPs' behaviour to be toughened after the emergence of several allegations of sexual harassment at Westminster.
In a letter to Fallon, May thanked him for "a long and impressive ministerial career."
"I appreciate the characteristically serious manner in which you have considered your position, and the particular example you wish to set to servicemen and women and others," she wrote.
As Fallon appeared on television to read a prepared statement, repeating his letter to May, the US government said the resignation "should in no way impact our relationship" with Britain.
"It should not impact the schedule" of meetings with UK representatives, a Pentagon spokesman said.
May's government has been struck by several claims of sexual harassment, with an investigation underway into allegations that her de facto deputy Damian Green touched the knee of journalist Kate Maltby and later sent her a suggestive text message.
Green, who was at university with May, said it was "absolutely and completely untrue that I've ever made any sexual advances" towards the journalist.
Junior trade minister Mark Garnier is also under investigation for breaches of the ministerial code for asking his former secretary to buy him sex toys in 2010.
