Mahony turned 75 on Sunday, the standard retirement age under church rules. He lead the Los Angeles Archdiocese, a flock of some 5 million that he has overseen for 25 years.
The new head will be Mexico native Archbishop Jose Gomez, who arrived to Los Angeles from Texas in May.
Gomez and Mahony presided jointly over Sunday's symbolic ceremony.
Gomez is the first archbishop of Mexican descent to head a North American archdiocese, though many of his flock have roots in Mexico and other Spanish-speaking countries.
City News Service contributed to this report.