The 54-year-old was emotional as she delivered the shock news at a snap news conference on Sunday, saying she will serve out the week as premier of the Sunshine State and resign as the MP for Inala by the end of the year.
"Standing alongside and standing up for the people of Queensland has been the honour of my life," she told reporters in Brisbane.
The outgoing premier said she thought about the decision while on holiday and made the final call at national cabinet, ending months of leadership speculation.
"I turned my mind to this when I was trying to have a holiday with my partner" she said.
"Finally, last week, my mind was made up at national cabinet.
"I was sitting there thinking this is the fourth prime minister. There are all these new faces around the cabinet table. We got a great deal for Queensland - $4 billion - and I thought to myself, renewal is a good thing.
"When I led this party from an opposition of just seven members, I said that the first election will be like climbing Mount Everest.
"I went on to climb that mountain twice more. I don't need to do it again," she said.
"I have given it my all and I've run a marathon."
Ms Palaszczuk said she would finish the week in the role with caucus to choose her successor on Friday, while endorsing her deputy Steven Miles, saying he would "make an excellent premier".
Her decision comes after a series of bad polls and an unannounced overseas holiday that fuelled leadership speculation earlier this year.
"Now is the time for me to find out what else life has to offer," she said.
"I've been thinking about it for a while and it's the right time and it's time for renewal."
"I gave it everything but I've got to the end of the year, I've been to national cabinet, that was the turning point."
Ms Palaszczuk said she was leaving Queensland in good shape.
"Today Queensland has one of the strongest economies in the nation, lower taxes, lower debt, low unemployment," she said.
"Our future is brighter than it has ever been."
Ms Palaszczuk was sworn in as premier of a minority government in February 2015 after Labor defeated Campbell Newman's Liberal National government after just one term.
After campaigning against public service cuts, she became the first female premier elected from opposition in Labor's dramatic return to power after the Bligh government's wipe-out in 2012.
In 2020, Ms Palaszczuk helped Labor comfortably secure a third term on the back of her handling of the COVID-19 pandemic.
The win saw the premier become the first woman to lead a party to three state election victories.
Prime Minister Anthony Albanese described Ms Palaszczuk as "a Labor hero".
"She retires as a Labor hero, a three time election winner, Australia's longest-serving female premier and - above all else - a champion for Queenslanders," he said in a statement on Sunday.
Mr Albanese said the premier's leadership "brought Queensland Labor back from the political brink" and praised her government for putting Queensland in a position of national leadership.
Foreign Minister Penny Wong described Ms Palaszczuk as "a game changer".
"The first woman to become a state premier from opposition - and the first to win three elections," she posted on X, formerly known as Twitter.
Queensland Opposition Leader David Crisafulli said "regardless of politics, nine years as premier deserves acknowledgement and respect".
Ms Palaszczuk's fellow Labor premiers congratulated her "on a great innings" and her achievements for Queensland.
NSW's Chris Minns called her a trailblazer who "fundamentally changed Queensland for the better", while South Australian leader Paul Malinauskas hailed her record as Australia's longest-serving female premier.
West Australian Premier Roger Cook posted on X that as health minister during the pandemic he saw first hand "her strong leadership and tireless work to keep Queensland safe".