The pope cited his age and diminishing strength, saying he didn't feel he could carry on the job.
The 85-year-old emphasized that carrying out the duties of being pope and leading more than a billion Roman Catholics worldwide requires both strength of mind and body. He says in the last few months, his health has deteriorated to the extent that he has recognized his incapacity to adequately fulfill the ministry entrusted to him.
"After having repeatedly examined my conscience before God, I have come to the certainty that my strengths due to an advanced age are no longer suited to an adequate exercise of the Petrine ministry," the pope said in Latin during a meeting of Vatican cardinals. "I am well aware that this ministry, due to its essential spiritual nature, must be carried out not only by words and deeds but no less with prayer and suffering."
Benedict's brother says the pontiff has been considering this decision for months. He says the pope has had increasing difficulty walking and has been advised by his doctor not to take any more transatlantic trips. When Benedict was elected in 2005, he was 78, the oldest pope elected in nearly 300 years.
Los Angeles Archbisop Jose Gomez called the pope's decision "Christ-like" and said it is an "act of humility and love for the church."
Though surprised by the rare announcement from the Vatican, some local worshippers are accepting of the pope's decision.
"I think this is the will of God," said Quincy Campo of Rosemead. "We just have to accept the fact that whatever decision he made, and leave everything and trust God and the Holy Mother and go from there."
The announcement came amid the latest developments in the church sex abuse scandal in the Archdiocese of Los Angeles. One local man says Benedict's resignation is a chance to start over.
"I just hope they pick someone good, especially with what's going on in the Catholic community," said David Morales.
Cardinal Roger Mahony will take part in helping to select a successor to Pope Benedict XVI. He will travel to Rome in March and says he looks forward to the process. This decision may come as another surprise to some of the estimated 5 million Catholics in the Archdiocese of Los Angeles.
Mahony was recently stripped of his administrative and public duties following the release of documents of priests accused of sexual abuse. Still, Mahony will be able to vote on Pope Benedict's successor.
Mahony is the most senior American cardinal out of 11 in the U.S.
"He brings to this a great deal of experience that is going to be very valuable in working with the other cardinals to select our new Holy Father," said Tod Tamberg with the Archdiocese of Los Angeles.
The pope's resignation sets the stage for the Vatican to hold a conclave to elect a new pope by mid-March, since the traditional mourning time that would follow the death of a pope doesn't have to be observed.
What happens next is a bit of history in the making since there is very little precedent for a former pope being around for his successor's conclave.
There are several papal contenders in the wings, but no obvious frontrunner. That was the same situation when Benedict was elected after the death of Pope John Paul II.
Though it is rare, the church does allow popes to resign. The last pope to do so was Pope Gregory XII, who stepped down in 1415 in a deal to end the Great Western Schism among competing papal claimants.
The pope's decision to step down comes as a surprise to many people, including New York Cardinal Timothy Dolan. Dolan said he's looking forward to the next conclave and hopes the next pope will possess similar qualities that Pope Benedict has, including knowledge about the world, theological depth, personal piety and linguistic talent.
Read the official Vatican translation of Pope Benedict XVI's announcement
The Associated Press contributed to this report.
