The 68-year-old's position has come under intense scrutiny over the past 18 months due to repeated failings in the EPL and Champions League.
The Frenchman has lifted the FA Cup in three of the last four seasons but that has not been enough to appease some supporters.
Wenger, whose side are set to compete against Atletico Madrid in the Europa League semi-finals next week, confirmed his decision to step down on Friday morning after more than 21 years at the helm and with more than a year left on his contract.
"After careful consideration and following discussions with the club, I feel it is the right time for me to step down at the end of the season," Wenger said in a statement released by Arsenal.
"I am grateful for having had the privilege to serve the club for so many memorable years.
"I managed the club with full commitment and integrity.
"I want to thank the staff, the players, the directors and the fans who make this club so special.
"I urge our fans to stand behind the team to finish on a high.
"To all the Arsenal lovers take care of the values of the club.
"My love and support for ever."
During his tenure at the Gunners, Wenger claimed three EPL titles and seven FA Cup trophies, managed in more than 1200 games and took Arsenal to a Champions League final.
Arsenal majority owner Stan Kroenke praised the impact the 68-year-old Frenchman Wenger had made.
"One of the main reasons we got involved with Arsenal was because of what Arsene has brought to the club on and off the pitch," Kroenke said.
"His longevity and consistency over such a sustained period at the highest level of the game will never be matched.
"Arsene has unparalleled class and we will always be grateful to him."
"He has also transformed the identity of our club and of English football with his vision for how the game can be played."
Former Arsenal favourite Patrick Vieira will be among the favourites to take the reins after claims the 41-year-old New York City boss has already been lined up to succeed his former manager.
"He's a guy who has the potential one day, yes," Wenger said of Vieira's credentials.
"I've followed his managerial career. I think he does very well. But overall, after that, this Premier League is special, you know."