Chief executive Sir Martin Sorrell ran WPP for 33 years, becoming the highest paid boss of a FTSE 100 company.
Sir Martin said WPP had been his passion, but it was in "the best interests of the business" to resign.
The probe into alleged misuse of WPP money - which he rejects - is over, WPP said. No more details were disclosed.
The chairman, Roberto Quarta, will become executive chairman and work with two co-chief operating officers until a new chief executive is appointed.
Sir Martin, aged 73, once said he would "carry on until they carry me out of the glue factory".
He was the longest serving chief executive of a FTSE 100 firm by far, and the best rewarded. In 2015 he faced an unsuccessful shareholder revolt over a £70m pay package.
WPP said Sir Martin would be treated as having retired, so will receive any payments and share awards due under his contract.
Earlier this month it was disclosed that WPP had appointed a law firm to investigate claims of financial impropriety. While Sir Martin rejected the allegation "unreservedly", he accepted "the company has to investigate it".
WPP's statement, released late on Saturday, said: "The previously announced investigation into an allegation of misconduct against Sir Martin has concluded. The allegation did not involve amounts that are material."
The company did not disclose further details about the claim. One source told the BBC on Sunday that the sums involved were less than £1m.
Although Sir Martin is deemed to have "retired" this was not the outcome he wanted.
His legacy as one of the titans of the advertising industry is secure - he built a £20bn global business from scratch and amassed a personal fortune.
In the end, it was the trends in world business that wrong-footed the sprawling empire he created. The old advertising firms have been rendered less important by the sheer reach and analytics available by platforms like Google and Facebook.
By his own admission, WPP got "walloped" last year and the company has lost a third of its value. If it hadn't, it's possible he could have survived the recent investigation into his conduct involving amounts of company money.
But shareholders were getting restless, he had lost the unanimous backing of the board and at 73, he is no spring chicken.
He has enormous energy and you wouldn't put it past him to create a new media empire. But his life's work, WPP - a company he was often accused of treating as his own - will now be run by someone else.
Sir Martin said: "The current disruption is simply putting too much unnecessary pressure on the business, our over 200,000 people and their 500,000 or so dependents, and the clients we serve in 112 countries.
"That is why I have decided that in your interest, in the interest of our clients, in the interest of all share owners, both big and small, and in the interest of all our other stakeholders, it is best for me to step aside."
Mr Quarta described Sir Martin as being the "driving force" behind WPP's growth and thanked him for his commitment to the business.
His departure comes at a difficult time for WPP, which faces intense competition from the likes of Google and Facebook as more advertising moves online.
WPP shares have fallen 32% in the past 12 months, valuing the company at £15bn, as sales and profits guidance were downgraded.
Earlier this year, consumer goods giant Procter & Gamble, the world's largest advertiser and one of WPP's biggest clients, vowed to cut spending and bring more control in-house.
A lack of succession planning about who will take over after the 73-year-old's retirement has also caused some anxiety among WPP shareholders.
WPP, originally called Wire and Plastic Products, was a UK manufacturer of wire baskets for the first 14 years of its life until 1985 when Sir Martin took a loan out against shares he owned in Saatchi & Saatchi and purchased a stake in the company.
His aim was to turn it into a marketing company offering a one-stop-shop for all the advertising and marketing needs of big corporations.
The renamed WPP Group embarked on a series of acquisitions - including of J Walter Thompson, Ogilvy & Mather, research business Taylor Nelson Sofres, and the Young & Rubicam Group.
Sir Martin was born in London and educated at the Haberdashers' Aske's Boys' School before going on to read economics at Christ's College, Cambridge.
An MBA from Harvard followed, and Sir Martin entered the world of work at Glendinning Associates before starting at Saatchi & Saatchi in 1975, becoming group finance director in 1977."
Source – BBC News