The 32-year-old told show boss Simon Cowell of her decision over dinner in LA last week.
The former Girls Aloud star has decided to leave the ITV singing competition to focus on her music career, despite Simon wanting her to return for the 13th series.
She said in a statement: "I have had such an amazing experience being a judge on 'The X Factor'. I have learnt so much and enjoyed nurturing talent but I've missed making music and am excited to be recording again.
"I want to thank everybody I have worked with along the way, especially Simon who I love to bits.
"I hope the show continues to produce stars and I wish them all the best."
Simon added: "Cheryl and myself spoke about this. I totally understand her commitment to making more records. She has been amazing on the show and in the near future we will be working on other things together."
A spokesperson for 'X Factor' also said: “Cheryl has been a great judge and mentor during her time on 'The X Factor', from her early years of winning with two of her acts - Alexandra Burke and Joe McElderry - through to last year’s series where she took Reggie ’N’ Bollie into the final.
"We’d like to thank Cheryl for her contribution to the show and wish her all the best with her return to music.”
Cheryl, who is dating former One Direction star Liam Payne, is in the middle of recording her new album in Los Angeles, which is due for release later this year.
Cheryl, who served an 'X Factor' judge from 2008 to 2010, before returning in 2014, is the second star to leave the current judging line-up following Nick Grimshaw’s announcement that he won’t be back for the new series.
It’s still unclear if Rita Ora will be back in her judge’s seat, but former judges Louis Walsh and Sharon Osbourne are both rumoured to be returning to the show in a bid to attract an older audience.
Former host Dermot O’Leary will also be back after just one year off from the show after his replacements, Caroline Flack and Olly Murs, proved to be unpopular with viewers.