Atleo made the surprise announcement at a news conference in Ottawa Friday.
He has faced calls for his ouster on social media this week and criticism from some regional chiefs over his support for the federal government's First Nations education act.
The controversy over the proposed First Nations education bill has divided aboriginal chiefs.
Atleo had been elected to a second term as national chief less than two years ago.
He scored a third ballot victory in the June 2012 vote, receiving 341 votes out of 512 cast by First Nations leaders from across the country. That put him far ahead of his closest competitor — Mi'kmaq lawyer Pamela Palmater of Ontario, who got 141 votes. The third candidate in the race, Dene Chief Bill Erasmus from the Northwest Territories, received 30 votes.
Since then, Palmater has continued to be a vocal critic of Atleo and was one of those calling for him to go this week.
"I'm not looking for his job," she said told CBC News this week. "Now individual chiefs are making the same call, but I'm making that call because Shawn Atleo has stopped defending our rights."
Palmater is one of many who are convinced the proposed First Nations control of First Nations education act is fatally flawed. She has said it gives too much control to the minister of aboriginal affairs, doesn't protect treaty rights and the money attached falls far short of what is needed to make a difference for First Nations children.
More to come