Ghiz says he will serve as premier until a leadership convention, at which point he will step down.
Premier Brad Wall says Ghiz has become a close friend, and he wants to wish him the best.
Wall says Ghiz is a voice for common sense and brings a national perspective to the premiers' table, such as supporting oilsands production in the west.
He adds that Ghiz's decision comes as a surprise.
Ghiz made the announcement at the legislature today in Charlottetown, saying he was proud of his government's record on a number of issues including the economy and education.
He has been the leader of the P.E.I. Liberals for 12 years.