In a statement, Mr Dacre said he had decided to “step back from the responsibilities of day-to-day editing” by his 70th birthday in November.
He will become chairman of the Mail’s publisher Associated Newspapers and its editor-in-chief.
Parent company DMGT said Mr Dacre’s new roles had been announced to facilitate a handover to the Mail’s new editor, “who will be named in due course”.
Mr Dacre will also leave his post as a board director of DMGT prior to the end of the financial year, it added.
The company’s chairman Lord Rothermere hailed Mr Dacre as “quite simply, the greatest Fleet Street editor of his generation”.
He also praised the “sheer power” of Mr Dacre’s “many campaigns, investigations and crusades that have held power to account, given a voice to the voiceless and often set the political agenda through six prime ministerships”.
“He has done this while working tirelessly to defend press freedom to the benefit of our whole industry,” Lord Rothermere added.
Mr Dacre has led a series of campaigns since taking over at the Mail in 1992 following a brief spell as editor of the Evening Standard.
Most famously, the newspaper used the headline “MURDERERS” in February 1997 to accuse the suspects who were acquitted of the murder of black teenager Stephen Lawrence.
But the Mail has attracted criticism for some of its coverage including when it branded three senior judges “enemies of the people” for ruling Brexit could not be triggered without a Westminster vote.
The Stop Funding Hate campaign group urged advertisers to pull their support of the newspaper, along with the Sun and Daily Express, for what it says are their “divisive hate campaigns”.
Mr Dacre has also faced scrutiny after Prime Minister Theresa May attended a banquet in London last November to celebrate his 25 years as Daily Mail editor.
He is reportedly Britain’s best-paid newspaper editor, earning almost £2.5m last year, with the Mail selling an average of 1.28 million copies a day despite a sharp fall in newspaper sales.
The Sun remains the UK’s highest-selling daily newspaper, shifting 1.49 million copies a day in April.