The Lothian list MSP is to take up a post as director of the John Smith Centre for Public Service at Glasgow University, and will leave the Scottish Parliament in July.
There had been speculation since she resigned as leader of the party in 2017 and began a relationship with SNP MSP Jenny Gilruth, that she would ultimately quit politics.
Rumours intensified over the weekend as close aides refused to deny that she was on the verge of leaving Holyrood.
Today Kezia Dugdale confirmed that she would leave this summer - two years before the next Scottish Parliament elections - and that while it had been an "honour" to represent the Lothian region her "next task is rebuild faith in our politics".
She said that since she was first elected in 2011, “the passion and commitment of our members has been inspirational. No matter how difficult things were activists were always willing to hit the doorsteps to spread Labour’s message. I have devoted my working life to public service, and this is an incredibly exciting new opportunity for me to lead the work of the John Smith Centre.
“Throughout my career I have taken on tough and challenging tasks, and my next task is to rebuild faith in our politics.
“Disruptive events and the rise of populism has led to increasingly polarised and emotional politics where rational, evidence-based thinking has lost its standing. Faith in public service, politics and the political process has to be restored and that progress must be sustainable.
“John Smith said ‘the opportunity to serve our country - that is all we ask’. It will be an honour to build on his legacy and inspire his values of public service in a new generation.”
Responding to the announcement, First Minister Nicola Sturgeon, said on Twitter: "I wish @kezdugdale the very best for the future. As political opponents, she and I have had our fair share of clashes over the years, but I think she is a big loss to @scottishlabour and to @ScotParl. I hope she enjoys her new challenge."
Ms Dugdale served as leader for two years after being Jim Murphy's deputy from 2014 to 2015. A moderate politically, her time as leader saw her come under increasing pressure from the left of the party, particularly after the election of Jeremy Corbyn as leader of the UK Labour Party, Her support for a second EU referendum was also in opposition to Mr Corbyn's policy on Brexit.
The death of her close friend Gordon Aikman from motor neurone disease, a split from her long term partner, and an estrangement from her father, also caused immense emotional stress. She finally quit as leader in the summer of 2017 and then controversially appeared on the reality TV show I'm A Celebrity Get Me Out Of Here.
She has also spent the last two years waiting for a trial to begin after she was sued for defamation by controversial pro-independence blogger Stuart Campbell. She had accused Mr Campbell of writing “homophobic tweets” but earlier this month successfully defended the defamation case after a sheriff ruled her claim was incorrect, but was protected under fair comment.
Her replacement as Scottish Labour leader Richard Leonard said: “Kezia will be a loss to the Scottish Labour Party but I am sure she will still play a valuable role in public life going forward.
“Kezia stepped forward at a difficult time for the Scottish Labour Party and on many issues – from arguing to use the tax and social security powers of Holyrood to making the case for federalism, she helped the party rebuild after the devastating losses of the 2015 General Election.
“On behalf of the Scottish Labour party I thank Kezia for her service and wish her well in the next exciting chapter of her life.”
The John Smith Centre for Public Service was established in 2014 and is named in memory of the former leader of the UK Labour Party who was an alumnus of Glasgow University. It's board includes current and former politicians including Scottish Conservative leader Ruth Davidson, the former Labour MP Ed Balls and the former SNP MSP Andrew Wilson.
Catherine Smith, chair of the Centre and daughter of John Smith, said: "We are absolutely delighted that someone of Kezia’s calibre will be joining us as the first full-time director of the John Smith Centre for Public Service after a rigorous and open recruitment process which attracted a strong international field.
"We are very much looking forward to working with her as she leads our strategic, research and outreach activities and takes the Centre to the next stage of its development."
Professor Sir Anton Muscatelli, principal of Glasgow University, said: "I am extremely pleased to welcome Kezia Dugdale to the University of Glasgow as director of the John Smith Centre for Public Service.
"Her background as one of Scotland’s most prominent and respected politicians will be invaluable in making a success of this important new position and bring tremendous insights in her academic work with our students, both undergraduate and postgraduate."