The actor, who has played the Doctor since 2013, made the shock announcement during an interview with Jo Whiley on her BBC Radio 2 show.
The 58-year-old star was talking about the forthcoming tenth series of the long-running BBC sci-fi drama, when he revealed it would be his last.
“I feel it’s time to move on,” he said.
“I feel sad, I love Doctor Who, it is a fantastic programme to work on.
“I can’t praise the people I work with more highly, but I have always been someone that did a lot of different things.”
The Glasgow-born star, who is the 12th actor to play the Doctor, said his final ever scenes will air at Christmas, but reassured fans that he was still Doctor Who at the moment, as filming was still underway.
The next series will also be the last with lead writer and executive producer, Steven Moffat, at the helm.
He praised Peter’s “fiery” portrayal of the Doctor over the last three years.
“Peter’s amazing, fiery, turbulent Doctor is still fighting the good fight, and his greatest adventures are yet to come,” he said. “Monsters of the universe, be on your guard - Capaldi’s not done with you yet!”
He added: “Like Peter, I’m facing up to leaving the best job I’ll ever have, but knowing I do so in the company of the best, and kindest and cleverest of men, makes the saddest of endings a little sweeter.”
Charlotte Moore, director of BBC Content, said: “He has been a tremendous Doctor who has brought his own unique wisdom and charisma to the role.”
‘Doctor Who’ was first broadcast in 1963 and underwent a relaunch in 2005.
Prior to playing the Time Lord, Peter was previously best known for his role as foul-mouthed spin-doctor Malcolm Tucker in the BBC series ‘The Thick of It’.