International Development minister Grant Shapps has resigned over his failure to act on bullying allegations that are now engulfing the Conservative Party.
His position had been in jeopardy after the Guardian revealed he had received a warning about his behaviour towards other members of his party.
Shapps said the "buck should stop with me" in his resignation letter to the PM, who pledged a "proper inquiry" into the affair.
Shapps, formerly the party's co-chairman, was accused of not acting on claims that Mark Clarke, a party youth organiser and former parliamentary candidate, was a bully.
Elliot Johnson, a 21-year-old party activist, was found dead in September having apparently committed suicide, after claiming Clarke has bullied him. Clarke denies any wrongdoing.
Clarke had been director of "Road Trip", a party initiative to bus people in to battle constituencies to campaign.
"Although neither the party nor I can find any record of written allegations of bullying, sexual abuse or blackmail made to the chairman's office prior to the election, I cannot help but feel that the steady stream of those who raised smaller, more nuanced, objections should have perhaps set alarm bells ringing sooner," Shapps wrote in his letter to Cameron.
"In the end, I signed that letter appointing Mark Clarke 'director of Road Trip' and I firmly believe that whatever the rights and wrongs of a serious case like this, responsibility should rest somewhere.
"Given the very serious nature of what has subsequently occurred and my role in appointing Mr Clarke, I cannot help but conclude that the only right course of action is for me to step down as a Minister in your government."
In his response, Cameron said: "I know you have much more to give in the years ahead."
The prime minister said he would "always remember" that Shapps had been "a loyal and trusted supporter of mine from the very beginning".
"You have made a lasting contribution to the work of the Government, but you have also been a faithful servant of our party, and I know you have much more to give in the years ahead," he added.
Earlier, the prime minister said: ""In terms of what the Conservative Party should do, there needs to be and there is a proper inquiry to ask all the questions and interview all the people who have come forward. That will take place."
Yesterday, Johnson's father called on Shapps and party chair Lord Feldman to resign, saying they should have acted on the claims when they first learned of them.
Cameron has said he feels "deeply" for Johnson's parents.
Cameron said: "It is a tragic loss of a talented young life. It is not something that any parent should have to go through and I feel for them deeply."
"I feel deeply for his parents."
Former Big Society minister Nick Hurd, who left government in a pre-election reshuffle, will fill the gap at the Department for International Development.
But he has been appointed parliamentary under-secretary of state – a lower-ranking role than Mr Shapps, who was minister of state.
Jon Ashworth, Labour's Shadow Minister Without Portfolio, said Feldman had "serious questions to answer" and the scandal required a "fully independent inquiry".
He said: "Grant Shapps’ resignation doesn’t end this - we need to know just how widely this goes. The current Party Chairman Lord Feldman has serious questions to answer about when exactly he was made aware of concerns about Mark Clarke and what action was taken as a result.
"The time has come for the Conservatives to put an end to the drip, drip of revelations. We need a fully independent inquiry - not one led by a Tory insider - to look at culture and practices in David Cameron’s Tory Party and a commitment to publish it. As the Prime Minister used to say, sunlight is the best disinfectant.”