Napolitano said that she would step down to become president of the University of California system.
Napolitano plans to step down in early September, the Washington Post quoted two Obama administration officials as saying.
Napolitano, 55, a former governor of Arizona who had been seen as a potential Democratic presidential candidate, will exit the political stage to run the nation's largest public university system.
She was confirmed as America's third homeland security secretary and the first woman to hold the post the day after President Barack Obama took office in 2009.
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"After four plus years of focusing on these challenges, I will be nominated as the next president of the University of California to play a role in educating our nation's next generation of leaders," Napolitano's statement said.
She graduated from the University of Santa Clara in California in 1979 as its first female valedictorian.
Obama thanked Napolitano for what he called outstanding work in dealing with "some of the toughest challenges facing our country."
He cited her leadership in recovery efforts from natural disasters such as Superstorm Sandy, dealing with the volatile immigration issue and protecting the nation against terrorist attacks.
A breast cancer survivor, Napolitano was attorney general and then governor of Arizona before joining Obama's Cabinet.